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  • JGWPT: Dominant Franchise In A Lucrative Niche Has 75% Upside [View article]
    Gilgit,
    You should consult your tax advisor, but we believe it is suitable. JGW is a C-Corp common equity like most other publicly traded stocks.
    Feb 25 09:25 AM | Likes Like |Link to Comment
  • JGWPT: Dominant Franchise In A Lucrative Niche Has 75% Upside [View article]
    We appreciate the kind remarks.

    Higher interest rates shouldn't be a detractor to JGW's profitability. Historical data shown in our report suggests that JGW's gross spread in 2005 - 2011 (a higher interest rate environment) was similar to current levels. Moreover, since the market is more consolidated today than it was then, pricing should be more defensible.

    For another data point, consider the following: in the first half of 2005, the fed-funds target rate averaged 2.68%, the 10-year Treasury rate averaged 4.22%, and the unemployment rate averaged 5.2%. Today, the fed-funds target is 0-0.25%, the 10-yr Treasury rate is 2.75%, and the unemployment rate is 6.6%. Yet during the 2005 period, Peach Holdings generated a 71% gain on its structured-settlement purchases, very much in line with the basic economics we lay out in the "Business Description" section.

    There could be quarterly earnings hiccups if interest rates suddenly spiked, as occurred in mid-2013 and impacted JGW's Q3 2013 results. However, JGW can immediately reprice its new acquisitions and continue to underbid competitors, thereby limiting the impact on its long-term cash flow generation.

    On the discount rate, we believe that most investors would be pleased to compound an 8% return to perpetuity (at our ~$30 target price) while holding shares in this industry leader, especially given low expectations for overall equity returns. Furthermore, our DCF does not include incremental value creation from M&A, pre-settlement funding expansion, and further monetization of inbound calls. Whatever the precise methodology used, we believe that the stock is clearly undervalued at the current price.
    Feb 24 05:28 PM | 1 Like Like |Link to Comment
  • Unilife: Quarterly Results Reveal Mounting Operating Losses, Continued Dilution, And Ambiguous Growth Plan [View article]
    Those product sales aren't guaranteed. Instead, they are typically the minimum volume required to maintain exclusivity, "Following a four year ramp-up period after market entry, exclusivity will be maintained, subject to Sanofi purchasing a minimum of 150 million units of the Unifill Finesse or other Unifill syringes per year."

    As for Hikma, the minimum volume figure of 175m is not mentioned in Hikma' s press release.
    http://bit.ly/1fVNSb2

    And even if Unilife executes all its contracts flawlessly, we don't believe one can construct a reasonable DCF that justifies the current valuation.
    Feb 6 09:48 AM | 2 Likes Like |Link to Comment
  • Unilife: Quarterly Results Reveal Mounting Operating Losses, Continued Dilution, And Ambiguous Growth Plan [View article]
    We'd argue that a single Unilife press release has more hyperpole than this article.

    How many other Nasdaq-listed corporations plaster "Game Changer" in bright green, size 40 font across the top of their websites?
    Feb 5 10:40 AM | 1 Like Like |Link to Comment
  • Unilife: Quarterly Results Reveal Mounting Operating Losses, Continued Dilution, And Ambiguous Growth Plan [View article]
    We discussed the interest expense to demonstrate the aptitude of the management team, not to dwell on a $4.3m expense item. To believe in UNIS, you need complete faith in management's ability to execute on the current contracts.

    The only income stipulated under the signed Hikma and Sanofi contracts is $20m in 2014 and $30m in 2015, if milestones are met. Unilife's run-rate cash burn will be twice this amount, inferring continued dilution unless production revenue ramps from zero to tens of millions of units. We think Unilife's 15-year track record warrants extreme skepticism when it comes to execution.

    If your bull case is solely contingent on price reactions to new deal announcements rather than the underlying economic fundamentals, then we have a difference in investment philosophy.
    Feb 5 10:33 AM | 3 Likes Like |Link to Comment
  • Will Unilife Price Its Potential Secondary Above $3.50? [View article]
    Unilife diluted shareholders again last week with 1.5m shares priced at $4.25. While new shareholers continue to pay $5+ for shares, UNIS management is a seller at $4.25. This also indicates that prior reports of a debt facility are false.

    Conspicuously, the filing was made on the Australian exchange and not on the SEC's EDGAR.
    http://bit.ly/KCuxjA

    Unilife's share count has now grown from 17.2m in 2006 to over 102m today.
    Jan 21 10:35 AM | Likes Like |Link to Comment
  • ServiceNow: Widespread Mistakes In Analyst Share Counts Fuel Overvaluation [View article]
    Thank you for your comments and you make a variety of valid points.

    In terms of the motivating factors of long holders, I can tell you that when we began exposing U.S.-listed Chinese companies as frauds, long holders had many non-fundamental reasons to remain long the stock. Ultimately, we turned out to be right in many of those situations, and generate a higher return than them. I've always had faith that stock prices ultimately reflect the fundamentals of the business. At some point, higher prices stop begetting higher prices, and instead lower prices begin begetting lower prices.

    In terms of portfolio construction, between the time of our first article on NOW and today, we have managed client money with a highly net-long exposure. Our shorts did poorly in 2013. Our longs did quite well. I would be completely shocked if you were to find a single "unhappy" client of our investment management firm. Someday in the future, we'll probably have an unhappy client, but I don't think there have been any to-date.
    Jan 12 01:10 PM | 1 Like Like |Link to Comment
  • ServiceNow: Widespread Mistakes In Analyst Share Counts Fuel Overvaluation [View article]
    As disclosed above, we are short NOW.
    Jan 9 09:10 PM | Likes Like |Link to Comment
  • ServiceNow: Widespread Mistakes In Analyst Share Counts Fuel Overvaluation [View article]
    We wouldn't call citing data from seven different banks, including a few bulge brackets, cherry picking. Quite conversely, you'd have to cherry pick to find banks that consistently get the share count correct.

    Such basic mistakes reflect a generally sense of sloppiness that occurs when the sellside anchors their price targets near the current trading price, no matter how irrational the valuation level. This tendency to goal-seek typically becomes most prevalent just before a bubble bursts.
    Jan 9 02:06 PM | 4 Likes Like |Link to Comment
  • Will Unilife Price Its Potential Secondary Above $3.50? [View article]
    Oculus, we have not found any disclosure related to a $40m debt facility in Unilife's filings. If the facility is only discussed in a research note, it may be rumored rather than actually in place.

    If the facility isn't yet funded, then UNIS should still require equity dilution to fund itself through 2014. We believe this will be the case.
    Jan 3 11:32 AM | Likes Like |Link to Comment
  • Will Unilife Price Its Potential Secondary Above $3.50? [View article]
    The auto-mixed syringe appears cumbersome, tough to manufacture, and consists of many discrete parts. Manufacturing millions of these syringes at 100% efficiency would be an extraordinary difficult and costly task. Until Unilife starts providing guidance on cash flow-based profitability, the current market capitalization doesn't seem justifiable. Fundamentals matter more than flashy websites.
    Dec 20 09:33 AM | 1 Like Like |Link to Comment
  • Will Unilife Price Its Potential Secondary Above $3.50? [View article]
    Unilife may have indeed exercised the $19.2m remaining on the ATM at $4.50. We won't know for sure until the next quarterly filing.

    Unlike a fixed-priced secondary, Controlled Equity Offerings allow a business to issue new shares at any time without a filing a new prospectus.
    Dec 20 09:22 AM | Likes Like |Link to Comment
  • Will Unilife Price Its Potential Secondary Above $3.50? [View article]
    You could have said the same thing in 2012 when the CEO affirmed that the ATM facility would not be drawn, "we have not drawn down this facility nor do we have any immediate plans to do so... The main reason that we put the ATM in place, that was to strengthen our position at the negotiation table". This proved incorrect, with the ATM diluting shareholders by another ~9m shares within a year.

    Unilife has a long history of issuing equity after major deal announcements. It would be naive to believe that UNIS won't follow a similar playbook today. And with the stock as volatile as it's recently been, we believe any offering will be come with a substantial discount to the market.

    If Unilife weren't raising equity, then the CEO would have no need to directly address the "shorts" and concern himself with the day-to-day share price. The fact that he does worry about it is revealing.
    Dec 19 11:08 AM | 2 Likes Like |Link to Comment
  • Unilife: History Of Missed Deadlines, Aggressive Cash Burn, And Vague Supply Agreements Suggest A 75% Overvaluation [View article]
    We believe conclusions like this, and a belief that 'this time is different', could have been made in 2004 after Unilife promised to be produce 65m syringes by March 2004, when Sanofi starting paying R&D fees in 2009, or after the unnamed deals 2011.

    The only guarantee from the recent slate of press releases is a combined upfront payment of $10m from Hikma and Sanofi, a sum that offsets just 3 months of Unilife's cash burn. The press releases include no sign of committed long-term revenue streams that justify Unilife's recent 70% share price rally or it's nearly half-billion dollar market capitalization. Once this temporary euphoria subsides, valuation and underlying cash flow streams will again come into focus.
    Dec 9 06:40 AM | 1 Like Like |Link to Comment
  • Unilife: History Of Missed Deadlines, Aggressive Cash Burn, And Vague Supply Agreements Suggest A 75% Overvaluation [View article]
    Thanks for the thoughtful questions Banzai.

    1) Our charts only consider 2006 - present, but Unilife has been burning cash since 2002. That cash burn might be promising were Unilife consistently building its revenue base, but it hasn't. A twelve year 'start-up phase' is generally unprecedented in the Medical Device industry.

    2) Unilife is a manufacturing business. Therefore, one might expect to see Unilife spend more on capex (just $3.3m over LTM) and less on operating expenses (~$56m excl. D&A). Cash flow should be producing hard assets, not paying excessive management and overhead salaries.

    3) If it's customers asked for boutique solutions, Becton or Covidien has the resources to accommodate any request. Syringes aren't meant to be flashy. The drug is the focus and the syringe itself should be well-built, safe, and reliable.

    4) Patents are awarded for all sorts of reasons, including incremental tweaks that may not impact the underlying product. In our experience, when a company shifts focus to its patent portfolio, it's an indication that prospects for the underlying business are weakening. Pharmaceutical customers aren't looking for a supplier with a certain patent, they are shopping for a well-equipped product from a dependable vendor.
    Dec 5 09:38 AM | Likes Like |Link to Comment
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