BLPA’s Rearview Mirror: Week Ending November 16th-Up, Up and Away

November 16, 2014

  • We love to hear your opinions and comments at mjohns@bluelakepartners.com
  • If you like what you read, please forward.

sine_curve2An interesting week with the President in China making progress on the trade front, and Congress’s new Republicans majority demonstrating their new bravado. A bit like the Democratic version six years ago, when Obama swept into office, indicating that both parties have similar personality profiles. No olive branches in this crowd.

Not much on the tech front—except China.  The new product cycles are more pronounced and building momentum.  The sea change is beginning to impact the old stalwarts such as Oracle and SalesForce.

Finally, another ISIS execution—or shall we call it what it was, a beheading— of an American aid worker in Syria. ISIS is stealing the humanitarian aid sent to Syria for their own territories. These moves can’t generate much good will in those territories. Very troubling.

At least the final market news was upbeat.

Earnings and the Market[1]

[Click on the company name of the story and on the stock symbol for the stock chart]

We have another new record on the S&P 500 as of Friday, when it closed at 2039.82, and the DJIA fell back from Thursday’s high to 17635. Before you celebrate, a great deal of the recent gains are due to the move into utilities. Feeling a sense of ennui? You aren’t alone. It’s a safe bet to say investors are worn out form all the market back-and-forth, and the September/October sinusoidal wave curve.

Importantly, Walmart (WMT: NYSE) and Nordstrom’s (JWN: YNSE) had good quarters, but Macy’s, JC Penney and Kohl’s. However, consumers are the most optimistic since 2008. Nordstrom’s earnings rose to $142m or $0.73 vs. $137m or $0.69 per share. Revenue rose 8.9 percent to $3.04b, and same store sales grew 3.9 percent.

Also, I think the US and China agreements to drop certain tariffs on goods estimated to be about one billion dollars a year, was a spur to the market. We are all feeling the economy get s-l-o-w-l-y better.

Oil prices are down, which should put more discretionary funds in consumer pockets. However, the negative side of low oil prices is that it reflects an economy that is lacking in demand.

Rackspace Hosting (RAX: NYSE), based out of San Antonio, has seen a lot of volatility over the years, finally had a great quarter, with earnings at $25.7m or $0.18 per share vs. $16.3m or $0.11 per share YoY. Revenues were at $459.8m vs. $388.6m. The cloud is on a roll.

Finally, three year old Hortonworks, specializing in Hadoop, an open source software framework that enables the distributed processing of large data sets across clusters of commodity servers, filed for an IPO valuing the company at $1.8b.

IPOs[2]

Click on Company Name for the S-1 filing and the Company Symbol for the stock chart. The Company descriptions are from the S-1 filing.

Medical/Pharma dominated the offerings this week, including one chiropractor chain based out of Scottsdale. In addition we have a Hong Kong-based solar park operator, and an airline: Virgin America.

Honk Kong-based Sky Solar Holdings (SKYS: Nasdaq) sold 5.5m ADSs at $8 per share, raising $44.2m at a valuation of $387m. The ADSs closed the week at $10.40 per share, which was the low end of the filing range. Looks like the filing range was too high, so the company as forced to reduce it far beyond where it would have been if the stock had been well-priced, initially.

  • We are a global independent power producer, or IPP. We develop, own and operate solar parks and generate revenue primarily by selling electricity. We have focused on the downstream solar market since our inception and have developed projects in Asia, South America, Europe, North America and Africa. We believe our broad geographic reach and established presence across key solar markets are significant differentiators that provide global opportunities and mitigate country-specific risks. We aim to establish operations in Japan, Chile, Uruguay and other select geographies with highly attractive solar radiation, regulatory environments, power pricing, land availability, financial access and overall power market trends. By design, we focus on the downstream photovoltaic, or PV, segment, and as a result, we are technology agnostic and we can customize our solar parks based on local environmental and regulatory requirements.

Virgin America (VA: NYSE) sold 13.3m shares at $23 per share, raising $306m at a valuation of $993m. The stock closed the week at $30 per share, a 30 percent increase. By means of a benchmark, a perfectly priced IPO increases 10 to 15 percent.

  • Virgin America is a premium-branded, low-cost airline based in California that provides scheduled air travel in the continental United States and Mexico. We operate primarily from our focus cities of Los Angeles and San Francisco to other major business and leisure destinations in North America. We provide a distinctive offering for our passengers, whom we call guests, that is centered around our brand and our premium travel experience, while at the same time maintaining a low-cost structure through our point-to-point network and high utilization of our efficient, single fleet type. Our distinctive business model allows us to offer a product that is attractive to guests who historically favored legacy airlines but at a lower cost than that of legacy airlines. This business model enables us to compete effectively with other low-cost carriers, or LCCs, by generating a higher stage-length adjusted revenue per available seat mile. Conversely, while our lower density seating configuration and the cost of our premium services contribute to a higher stage-length adjusted cost per available seat mile than that of other LCCs, our underlying cost structure stemming principally from our single fleet type and point-to-point network is competitive within the industry. As of September 30, 2014, we provided service to 21 airports in the United States and Mexico with a fleet of 53 narrow-body aircraft

Medical/Pharma

FibroGen (FGEN: Nasdaq) sold 8.1m shares at $18 per share raising $146m at a valuation of $1.00b. The Company closed the week at $22 per share.

  • We are a research-based biopharmaceutical company focused on the discovery, development and commercialization of novel therapeutics to treat serious unmet medical needs. We have capitalized on our extensive experience in fibrosis and hypoxia-inducible factor, or HIF, biology to generate multiple programs targeting various therapeutic areas. Our most advanced product candidate, roxadustat, or FG-4592, is an oral small molecule inhibitor of HIF prolyl hydroxylases, or HIF-PHs, in Phase 3 clinical development for the treatment of anemia in chronic kidney disease, or CKD. Our second product candidate, FG-3019, is a monoclonal antibody in Phase 2 clinical development for the treatment of idiopathic pulmonary fibrosis, or IPF, pancreatic cancer and liver fibrosis. We have taken a global approach to the development and future commercialization of our product candidates, and this includes development and commercialization in the People’s Republic of China, or China.

While it’s clever to distribute your development world-wide, particularly in lower cost geographies in the connected-world, we have to wonder.  How do you phrase a risk factor about the likelihood of IP theft in China?

Israeli-based NeuroDerm (NDRM: Nasdaq) sold 4.5m shares at $10 per share, raising $45m at a valuation of $164m. The stock closed the week at $9.15 per share.

  • We are a clinical-stage pharmaceutical company developing next-generation treatments for central nervous system, or CNS, disorders through proprietary formulations based on existing drugs that are intended to make a significant difference in patients’ lives. Product candidates in our pipeline are designed to overcome major deficiencies of current treatments and achieve enhanced clinical efficacy through continuous, controlled administration, primarily subcutaneously or transdermally. Additionally, because our product candidates are based on reformulations of leading, approved drugs, we believe that most of them qualify for an accelerated, lower risk regulatory pathway to marketing approval.

North Carolina-based and KKR-owned PRA Health Sciences (PRAH: Nasdaq) sold 17m shares at $18 per share, raising $306m at a valuation of $1.0b. The stock closed the week at $20.22 per share.

  • We are one of the world’s leading global contract research organizations, or CROs, by revenue, providing outsourced clinical development services to the biotechnology and pharmaceutical industries. We believe we are one of a select group of CROs with the expertise and capability to conduct clinical trials across all major therapeutic areas on a global basis. We have therapeutic expertise in areas that are among the largest in pharmaceutical development, including oncology, central nervous system, inflammation and infectious diseases. We believe we provide our clients with one of the most flexible clinical development service offerings, which includes both traditional, project-based Phase I through Phase IV services as well as embedded and functional outsourcing services. We believe we further differentiate ourselves from our competitors through our investments in medical informatics and clinical technologies designed to enhance efficiencies, improve study predictability and provide better transparency for our clients throughout their clinical development processes.

Scottsdale-based The Joint (JYNT: Nasdaq) sold 3m shares at $6.50 per share, raising $19.5m at a valuation of $60m. The stock closed the week at $6.75 per share.

  • We are a rapidly-growing franchisor of chiropractic clinics that operates on a non-insurance, cash-based model. We seek to be the leading provider of chiropractic care in the markets we serve and to become the most recognized brand in our industry through the rapid and focused expansion of chiropractic clinics in key markets throughout North America and abroad.

Meg’s Corner

The cold air is beginning to blow, with an early morning temperature dipping into the low 20’s. Funny how it seems frighteningly cold now, but the same temperature will feel relatively mild in February.

Thoughts of Thanksgiving celebration have come in to focus. We’re planning on trekking up to Maine, complete with pugz, to celebrate with Reverend Patti, her partner and her three, now grown, sons. New England is enchanting in that the neighboring states are so close and distinctive.

We’ve done the final winter preps: The leaves are picked up, the gutters are cleaned, and the pugs are getting suited for the winter coats.

All the best,

Margaret Johns

Founder, BlueLake Partners, LLC

 

Affiliates:

SiVal_Logo

 

 

 

Jan Robertson

SiVal Advisors, LLC

 

Bic Stevens

Stevens Capital Advisors

 

Chartworth2Chartworth

Susan Woods and Vlad Harris

Margaret Johns is the Founder and Chairman of BlueLake Partners, a boutique M&A investment bank based in the Greater Boston Area.  Prior to founding BlueLake she was an employee founder and Managing Director at Needham & Company where she worked in Corporate Finance in New York City and headed up its Boston office.  She now lives in Londonderry, New Hampshire with her husband, 16 year old step-daughter and three pugs.  When she’s not working with clients, FINRA or writing blogs she competes on the Granite State Penguins Masters Swim Team, skis, rides her bike or is out walking her pugs.

Content researched, edited and reviewed on a best efforts basis.

———————-

We make no claim to being comprehensive in our review, as the contents are companies and topics we, ourselves, find of interest.

———————-

This newsletter is currently being proofed by Dave Henshaw, which is much appreciated. Dave is my USMS swimming lane mate, and Granite State Penguin team-mate. He is retired from MIT, where he used to produce and proof their annual financial report. Exactly what we need.

[1] WSJ Morning Moneybeat

[2]Renaissance Capital