Renaissance Capital IPO Research

Research analyst, ipos, long/short equity
Renaissance Capital IPO Research
Research analyst, IPOs, long/short equity
Contributor since: 2009
Company: Renaissance Capital LLC
Elevate Credit has been on file for a $100mm IPO since November 11, and is therefore eligible to set terms at any time for its US IPO. However, the company has only a few more days to do so if it plans on going public in 2015.
CORRECTION: The above table does not display the first-day pop for Penumbra or Nabriva Therapeutics, which began trading on Friday, September 18, and popped 38% and 29%, respectively.
Shake Shack expected to price tonight (1/29) for trading tomorrow (1/30). The company raised their IPO price range yesterday morning:
As a result of Hurricane Sandy, several IPOs have rescheduled their pricing. Southcross Energy Partners has been pushed back until Thursday, 11/1. Taylor & Martin Group, Singulex, and Radius Health all delayed their pricings until next week. All three plan to price on 11/7.
David, Cornerstone OnDemand (CSOD) went public in March 2011 at $13 per share.
Here's our IPO Profile:
Eloqua just officially filed for an IPO . . .your sources were correct regarding both the lead underwriters and co-managers.
Eloqua was one of 6 IPOs to file yesterday including three tech/software companies
The relevant valuation metric for hospital operators, particularly given their capital structures, is EV-to-EBITDA not P/E.
P/E can be useful, but in this case it is distorted due to changes in capital structure happening on the IPO. Again, you need to look at forward earnings, not trailing. A sales multiple may also be relevant if you think they can get their margins up closer to peers, but we fear the company may be structrually disadvantaged due to its focus on urban hospitals. True, interest ate up almost all of its operating income on a trailing basis, but the debt paydown on its IPO will reduce its annual interest expense by at least 15%. You really need to look at cash flow, which is what drives the business and investors' views on valuation. Finally, the company completed a material acquisition in early 2011, so again using a trailing P/E multiple without adjusting for that acquisition is misguided.
The book value argument also adds minimal value here, again owing to capital structure, PE transactions and consolidating nature of the industry (which leads to significant goodwill on the balance sheet of both Vanguard and most peers). And HCA has a negative book value. Book value is only relevant here to the extent you think you are are buying a phyical asset (that you will ultimately sell) as opposed to an operating entity. So again, not particularly relevant.
The real issue here is Vanguard's sub-par margins and high projected capital spend, which makes it less attractive relative to its publicly-traded peers.
Our institutional research fully examines all of these issues and puts into context Vanguard's overall valuation with its public peers:
Priced at $25 (above the filed range) . . . $1.3 billion in IPO proceeds makes it the largest Internet IPO since Google. Will be interesting to see how this trades following LinkedIn's debut last week. Yandex represents the only US-listed Russian Internet company. Russia's internet industry is still in the early stages of its development, representing an attractive secular growth story.
More on Yandex:
LinkedIn now plans to raise $341 million. The company raised its range to $42-45, 30% higher than initially anticipated. www.renaissancecapital...
LinkedIn has since raised its range to $42-45, 30% higher than initially anticipated. www.renaissancecapital...
With all due respect, how was our point confusing or unfocused? We merely are pointing out that looking at an annualized number is not how most investors value high-growth companies, particularly one that is at a very early stage of its expansion. The main point to our argument is that you have to look at the company's potential earnings/cash flows, which you do not address anywhere in your report. Indeed, looking at past or annualized financials can provide a "reality check", but only if you are comparing apples to apples, and only if you provide context for growth. You indicate that 84x is a "reasonable" multiple for a fast growth company with high gross margins. But what constitutes high growth for you and what are your assumptions on sustainable net margins (not gross)? Is it going to grow 20% or 40% or 100%? Will net margins peak at 20% or 30% or 40%? Answering these questions are critical to any valuation discussion here and dramatically impacts how to make an informed investment decision.
Based on Qihoo's trading debut, investors are clearly anticipating extremely robust growth over the next few years. Accordingly, it offers minimal value to look at past or annualized 4Q earnings in assessing the valuation here. Our Pre-IPO research dives into the company's business model, competitive positioning and provide a detailed revenue and earnings model, which is a necessary step in looking at what the current valuation implies.
View our featured IPO write-up on Qihoo
To Both:
We believe MagnaChip's proforma earnings are indeed more representative than reported (GAAP) earnings for a number of reasons. At a minimum, investors should adjust for the following, which are non-cash in nature and are not directly comparable to other companies in the sector.
1) non-cash amortization of intangibles related to purchase accounting as a result of its bankruptcy and subsequent recap
2) non-cash FX gains/losses
Both of these items significantly distort the true underlying earnings of the business and should be excluded in our view.
Of course, with cyclical businesses, annualizing a quarter or looking at a specific year can be limited in assessing the valuation. The key for these companies is understanding the company's cash flow generation throughout the cycle, and ultimately, the returns-on-capital. Assuming MagnaChip can maintain positive top-line growth and expand margins to its targeted levels (which we provide a detailed analysis in our Pre-IPO research), the stock appears inexpensive.
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The proposed price on GKH should be $12, which implies a market value of $182 million. This results in a 1.1x price/book, which makes sense for what is essentially a blank check vehicle.
We have published an in-depth analysis of this deal, including key investment risks and valuation analysis, which is available as part of our institutional research service.
The ticker symbols FSHI and PM are for Renaissance Capital's internal use only, as discussed on our website at Both companies have yet to identify ticker symbols for their upcoming IPOs. Once they do, our site will be updated accordingly.
NeoPhotonics stands to benefit from a poweful telecom upgrade cycle currently underway, where carriers are increasingly allocating more of their capital budgets to boost their network capacity . . . our Pre-IPO research report included an in-depth analysis of NeoPhotonics' business, strategy and growth and earnings outlook, helping investors to better evaluate the company's potential and fair value
Many optical suppliers have reported strong number and issued bullish commentary on order trends (e.g. OPLK, OCLR, OPXT, JDSU), which we view as a very positive read-through for NeoPhotonics
Everbank has not yet disclosed terms or timing for its IPO. You can check our company profile on Everbank for any updates.
The first big private equity backed IPO of 2011, Nielsen Holdings is expected to price this week and begin trading on the NYSE under the ticker "NSLN". It is one of a handful of US IPOs slated to price over the next few weeks as the 2011 IPO market hopes to kick off on an active note . .
KKR and Blackstone are two of Nielsen's four major backers, so it will be interesting to see how these stocks respond assuming this IPO is a success. A successful debut could also set the stage for more IPO activity over the coming months from private equity firms as they look to the IPO market for liquidity and to reduce the large debt burdens of their portfolio companies. While indeed investing in publicly-traded private equity firms is an indirect way of gaining exposure to IPOs, it only offers exposure to a subset of the IPO market. In 2010, performance of private equity backed IPOs trailed overall IPO performance, albeit by a small margin. However, performance among individual PE-backed IPOs varied widely, and this group of IPOs accounted for 3 of the 5 worst IPO performers in 2010. Alternatively, there is a publicly traded mutual fund (IPOSX) provides more broader exposure to the IPO market as a whole, including investments in fast growing growth companies typically not held by provide equity firms.
You can learn more about the IPO Plus Fund here. . .
IPO activity has definitely picked up over the last few months, as has performance. Small cap growth IPOs are leading the charge (key sectors are tech, consumer and "China") and top the list of best performing IPOs. The FTSE Renaissance IPO Index, which more accurately captures the underlying performance of IPOs, also shows relative outperformance to the major market indices YTD . . . you can learn more on how this index is calculated and why it is unique at:
The FTSE Renaissance Asia Pacific ex Japan IPO Index, which is a comprehensive benchmark index designed to capture the essence of IPO activity and performance in the Asia Pacific region, is up 18% year-to-date.
Not sure how bloomberg is calculating their data -- our data shows that if 9 deals price, this week would be the most active for the US IPO market since late 2007. Our complete breakdown of monthly IPO activity (table format) is provided below . .
Note to author: the IPO quiet period for broker research was extended many years back to 40 days. Our IPO research service tracks these dates real time. We also offer in-depth research and analysis on every IPO prior the expiration of the lock-up period.
Renaissance Capital recently issued a "Roadmap for a Successful GM IPO". Anyone can view it here at our public web site:
Update to readers: SurgiVision's IPO was postponed on Friday due to "market conditions". Accordingly, there are now 7 IPOs scheduled to price during the week of August 2.
There is no definite timing on NewEgg's IPO. As soon as timing is determined, we will update the information on our website.
The discrepancy in share count you are referring to stems from the fact that Ironwood has two shares classes (A and B). The correct number of total shares outstanding is indeed 94.9 million. This of course excludes options since at this point they are antidilutive. However, they should not be ignored in your analysis as the company has another 13.7mm options with an average exercise price of $2.45 per share.
See our IPO Profile at
Abbi: for any IPO, the best place to start is the prospectus. So for a US-listed Chinese company, that means going to the SEC's site --
In terms of IPOs listed oustide the US, this is generally more challenging given the lack of disclosure and process differences relative to the US markets. That said, with respect to China in particular -- all HK-listings post full english versions of the prospectus prior to pricing on the HK exchange's web site. They actually post two versions -- the first is called a WPIP (web proof information pack) -- which is similar to a US prospectus without specific IPO pricing terms (basically similar to when a US company initial files to go public). . . the difference in HK, however, is that once this document is filed the company begins marketing the IPO so the window from filing to pricing is much shorter. Usually several days prior to pricing, "to-be-listed" HK companies file a prospectus complete with the actual pricing terms (i.e. shares, IPO price range, etc.)
Investors can find links to both
1) WPIPs
2) actual prospectuses under Main Board - Prospectus
on this page
For example, both the WPIP and prospectus for RUSAL (US $2 billion pending IPO) is available
Access to information on IPOs listed in the Mainland (i.e. Shanghai) is currenlty unavailable to general folks in the US since the market is closed to outside investors. My guess is that will change over time.
Paul Bard
Renaissance Capital
Please note: after the posting of this article, ZST Diginal Networks' IPO has been rescheduled for next week.
Please note the following that Verisk will be listed under the symbol "VRSK" on the NASDAQ (not the NYSE). Our apologies for the typo.
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