GENERAL MOTORS (GM)
Conclusion: IPO investors can expect to make money on GM’s IPO.
The investment community hammered down the pricing of GM’s IPO almost 50% from the $82 billion valuation floated the first part of August, 2010. Compare P/E ratios annualized for the nine months ended September 30, 2010 GM: 8.5, Ford: 20, Toyota: 18 GM IPOreport
4 BIG CAP NON-DIVIDEND COMPANIES
(1) Caesars Entertainment (CZR)
CZR is the world’s largest casino entertainment provider. The company is offering a $980 million IPO with a market cap of $5.4 billion at the price range mid-point of $15. Scheduled for Friday, November 19, 2010
Conclusion: CZR is very risky at the price range mid-point of $16. Stay away.
The balance sheet is weak and compromised with $20 billion of debt. CZR has a negative tangible book value of $6.7bb, post-IPO
The income statement is also weak. For the nine months ended September 30, 2010 revenue decreased to $6.7bb from $6.8bb. Profit dropped to -$634mm from a plus $532mm. And iInterest charges of 22% of revenue crippled the income statement. Dividends not expected because of weak financials
Expansion? CZR wants to use IPO proceeds to expand, but there is significant overcapacity in the gaming business, especially in Las Vegas.
(2) LPL Investments (LPLA)
Provides brokerage and investment advisory services to over 12,000 independent financial advisors and financial advisors at financial institutions across the country. $445 million IPO with a market cap of $3 billion at the price range mid-point of $28.50. Scheduled for Thursday, November 18, 2010
Conclusion: The P/E multiple of 38 seems risky (annualizing September 30, 2010 nine months results)
LPLA is highly debt leveraged with a negative tangible book value of almost $1 billion. Interest payments (3.1% of revenue) exceeded after-tax profits (2.6% of revenue) for the nine months ended September 30, 2010. The company can’t pay dividends because “senior secured credit facilities contain restrictions on activities, including paying dividends on capital stock.”
100% of IPO proceeds to selling shareholders who are mostly executives plus Goldman Sachs (GS), not a good sign
(3) Booz Allen & Hamilton (BAH)
Consulting services to the US government. $252 million IPO with a market cap of $2.1 billion at the price range mid-point of $18. Scheduled for Wednesday November 17, 2010
Conclusion: Overpriced based on P/E ratio comparisons, annualizing six months ended September 30, 2010.
Booz Allen&Hmltn (BAH) 25
CACI Int'l (CACI) 13
L-3 Comm (LLL) 9
ManTech (MANT) 12
Risky Income statement: 98% of revenue from the US government which is expected to cut federal spending; interest charges as a percent of revenue are double net profit, 3.2% vs 1.6%
Crippled balance sheet: in 2009 paid $612 million in dividends to private equity shareholders; resutling in a negative tangible net worth of $586 million post-IPO; can’t pay future dividends due to restrictive debt covenants
(4) Aeroflex Holdings (ARX).
Global provider of radio frequency, or RF, and microwave integrated circuits, components and systems. $254mm IPO with a market cap of $1.2 billion at price range mid-point of $14.50. Scheduled for Friday, November 19, 2010
Conclusion: Overpriced with a long track record of losing money.
For the fiscal year ended June 30, 2010 interest payments were 30% more than operating earnings. 13 % interest payments, 10% operating earnings. Tangible book value is a negative $450 million. The company can’t pay dividends because of restrictive debt covenants
TWO CHINA DEALS
Bitauto Holdings Limited (BITA) provides Internet content and marketing services for China’s automotive industry. $113 million IPO with a market cap of $454 million at the price range mid-point of $11. Scheduled for Thursday, November 18, 2010
Conclusion: Seems high priced but Internet content leaders in fast growing markets sometimes seem overpriced.
At 155 times annualized, adjusted earnings for the nine months ended September 30, 2010 BITA does appear to be richly priced. However, BITA looks like a leader in China's fast growing Internet-based automobile advertising market sector. With a 64% gross margin, BITA’s bottom line could benefit significantly from (potential) rapid increases in top line revenue
Lizhan Environmental (LZEN)
Makes synthetic leather and other fabrics from recycled leather waste. $10 million IPO with a market cap of $72 million the price range mid-point of $5.50. Scheduled for the week of November 15.
Conclusion: Worth watching to see if the profitable, geometric sales increases can reoccur. The company has been in operation since 2008. For the nine months ended September 30, 2010 sales grew 218% to $35mm from $16mm in the year earlier period. Gross profit of 25% suggests relatively low proprietary value added
Anacor Pharmaceuticals (ANAC)
Biopharmaceutical development company specializing in a boron chemistry platform. $80mm IPO with a market cap of $294 at the price range mid-point of $17. Scheduled for Thursday, November 18, 2010.
Conclusion: Worth watching because of top flight partners.
Collaborating with GlaxoSmithKline (GSK, $100 billion market cap) and Eli Lilly (LLY, $40 billion market cap). Sales doubled to $24 million for the nine months ended September. However, 75% of contract revenue from related parties. Loss rate is declining.
Products for the treatment of central nervous system disorders and pain, especially migraine and cluster headaches. $78 million IPO with a market cap of $299 million at the prince range mid-point of $13. Scheduled for Wednesday, November 17, 2010
Conclusion: Worth watching if ZGNX in fact IPOs and reduces SG&A expenses so that breakeven is in sight.
Introducing a new product that generated $15mm in sales in the first three quarters -- Sumavel™ DosePro™ (sumatriptan injection) Needle-free Delivery System was launched in January 2010.
However, SG&A expenses ballooned to an annual run rate of $54mm for the nine months ended September 30, 2010, and ZGNX lost $51 million.