Vectura Share Discussion Threads

[base7] 12/9/2019 16:35

Sounds like a plan Boadicea & how perverse that our share price is showing some welcome strength today in reasonable volume.Perhaps HBM will be in less of a rush to unload their remaining holding with view to what may be improved sentiment towards Vec in light of the Results & £60mill buy back

[base7] 12/9/2019 16:34

Sounds like a plan Boadicea & how perverse that our share price is showing some welcome strength today in reasonable volume.Perhaps HBM will be in less of a rush to unload their remaining holding with view to what may be improved sentiment towards Vec in light of the Results & £60mill buy back

[boadicea] 12/9/2019 15:12

If holders are expecting to take the special divi in shares, would it not be wiser to buy the shares now - assuming funds equivalent to the divi are available without significant on-cost - and then to keep the special dividend when it arrives. This guards against adverse (i.e. increasing!) share price before the number of shares equal to the value of the special divi is calclated. If doing this now, remember that the number you buy will subsequently be reduced by consolidation. In other words, if you now have 156 shares and don't want that reduced to 144 by the consolidation you need to buy another 13, (total 169 which will reduce it back to 156) not another 12 (total 168 reducing to 155.)!

Kolosos mentions a possible liquidity problem in the share buy-back programme. I assume JPM will target persistent seller HBM who apparently wants out.

[cumnor] 12/9/2019 10:53

Thanks Paul for going to the trouble to decipher that. Added 10% to my holding /to keep post divi (will keep it in shares though) holding from falling.

[polaris] 12/9/2019 10:45

Seems a lot of confusion here so let's go through the process.

Company has 130 shares and a cash pile of 10p per share.
You hold 13 shares. That is 10% of the company...RNS needed! ;-)

In this scenario then you will be given 6p per share and your holding will be reduced from 13 shares to 12 shares. What does this mean?

Company now has 120 shares and a cash pile of 4p per share
you hold 12 shares and 13x6p in cash. You STILL own 10% of the company.

Therefore, it is a neutral effect on your holding. You are not being diluted. You just own some cash and the same proportion of the company as before, in this case 10%.

So, why bother?

Well, normally the cash component of a market cap is small cf the market cap and a simple way to evaluate the company is on its EPS. Let's expand the example above.

Company has 130 shares and 10p per share in cash. It has an EPS of 6p per share and a P/E of 15. What is the SP?

Many people will say 90p as they just take the EPS and the P/E. The cash component is 'dead'. For me the actual share price should be 100p or the effective P/E is lower than 15...actually 80/6 or 13.33. Most company cash piles are small cf. market cap so cash piles tend to be ignored.

Working through the maths with the same example as before and you will see that treating the cash as 'dead' distorts the actual valuation as a function of the cash to market cap.

In VEC case the cash pile is £100+M on a market cap of £500M...that's significant. The cash should be taken into account for evaluation.

All VEC are doing is returning some of the 'dead' cash to you and letting you decide what to do with it. You can buy more shares (the DRIP option) at prevailing market prices. This increases your overall %age holding in the company but probably also increases the average price paid. However, if the cash is dead in the market cap evaluation exercise then you are gaining by a factor related to the EPS, P/E and price paid/price at date of conversion...i don't have the time right now to write it all out but, believe me, you ARE gaining if valuation ignores the cash pile.

What else will the consolidation and cash release achieve?

Well, it reduces the free float as it reduces the total number of shares in circulation. It increases EPS...profit doesn't change but the total number of shares reduces (this assumes no interest from cash pile and cash pile being 'dead' in market cap evaluation). At constant P/E for a sector then the share price will go up.

You also have cash and the option to use DRIP. That means you increase your %age holding of the company and provide buying pressure. With reduced free float this causes the share price to rise to balance buy/sell demand.

Company has a buyback in place for £10M at same time. This reduces the total number of shares and free float while further increasing EPS. If cash is 'dead' value then this also increases the share price by providing further buying pressure and increased EPS with constant P/E!

The larger the cash pile wrt the total market cap, the larger the effect will be...to your advantage.

Then we have the possibility of the GSK litigation money...the effective EV of VEC assuming this is paid in full is around £250-260M at todays share price I'd say Flutiform alone is worth that (£100M+ revenue p.a. and margin of 35% plus royalty of around £6.5M p.a.)

VEC is a screaming buy under this scenario and will become stupidly undervalued if the partial judgement of yesterday is reflected in the expected final verdict in the US.

Of course, this is all IMO and cannot be construed as investment advice.

regards,

Paul

[cityfarmer] 12/9/2019 10:05

In line with other large and long term holders continue to watch/add with interest. Do view current share price as a bargain being cash generative (mainly due to Fluti), Exprarel milestone now within grasp, VR315 re submission due any week now (potential launch 2020) , QVM149 submitted (potential launch 2020) and Generic Elipta progressing well. But mainly don’t feel the current GSK litigation ($90+$45+$65m =$200m) looking increasingly likely with large pay out 2020 (after likely GSK appeal) is in any way reflected in the current share price and very much underpins current value. A move by HIK or a tactical move by GSK can’t be ruled out as makes sense on paper for both (I could even have a wet dream about a bidding war) and vulnerability with no CEO in place. 2020 looks like a year of crystallising of above points for VEC and value should prevail….

[best1467] 12/9/2019 10:01

What I would say is That have held many shares that have paid special dividends numerous times and never felt need to dilute share holding but that sums this management up really

[best1467] 12/9/2019 09:51

Don’t see any costs involved it’s just a case of do you want a cash payout with slight dilution or new shares with limited dilution

[best1467] 12/9/2019 09:48

Popper joe My understanding is that you get the 6p per share x your number of shares then converted at the conversation price which will give you X number of new shares depending on your holding

[cottonpickers] 12/9/2019 09:29

If there were just a share consolidate I don't see that I would lose out. It should be neutral. If there were a special dividend paid I would gain. Why do people think combining the two changes that situation?

[popper joe] 12/9/2019 08:31

best1467 - I saw reference to the DRIP in the RNS but no mention during the webcast. Do you know the details? Is there a cost involved to get your money back in to the shares? What price would the DRIP shares be priced at? If higher than 78p, then we are losing out.

[a1ord53] 12/9/2019 08:14

Its not good - if I receive 6px13=78p and give up 1 share it means for me loss.
I can sell now 1 share for 80p and get 2p more. So its steal and not deal ?
Please, anybody explain why I have to accept this proposal ?
Its robbery imo.
Thanks all in advance.

[base7] 12/9/2019 07:40

I like Polaris & others here have a large holding & my current view is that I will take the DRIP option to avoid dilution at a point in time when "every dog has its day" (but not always) may be relevant for Vec as we move into 2020.The appointment of a CEO with a fantastic track record would be useful & someone with that CV doing due diligence into Vec must see the potential to double our share price (without having to dilute)providing them with an opportunity to make a substantial gain over a relatively short period ,assuming they negotiate a decent shares/options package based on performance.The longer we dont have a CEO the more vulnerable we are to a low ball bid ,but either way,our true value must be well North of our current share price & while appreciating Polaris s conservative view of our value being 100p+ I would have thought 150-200p to be not unreasonable

[best1467] 12/9/2019 07:27

Popper joe but you can take DRIP option which would limit any dilution

[popper joe] 11/9/2019 23:12

In summary, shareholders will be forced to sell 7.7% of there shareholding back to the company at an effective price of 78p (13 x 6p) just at the point when things look like they might start to move the share price up.

[polaris] 11/9/2019 22:38

Not working that way - special divi is £40M, so 6p per share. They will then also consolidate at the same time so reduce the number of shares that everyone holds. For every 13 shares you have now you will then have 12...so a 7.7% reduction in number of shares. They will then start a buyback of shares in open market of £10M and, once that is completed, state another £10M buyback will commence or at least be authorised. Resulting cash pile will be £45M based on close of H1 but there are deferred cash contributions that will arrive in H2 as well as cash from H2 ops, so expect cash pile to be around £55M at YE, post buybacks and special divi. Total shares in circulation to be between 595 and 600M cf current 666M or so.

NB. This does not include anything from GSK litigation.

[base7] 11/9/2019 22:36

Hikma will have a reasonable idea as to how much generic Advair & Elipta products could be worth to themselves & Vec & therefore how much it maybe worth them paying for the privilege of owning 100% of that potential.Why would that not be around £1bill if the numbers check out & they would no doubt sell off the parts they dont want.
Board buying in decent numbers (assuming no ongoing discussions) following results would be encouraging .

[kolosos] 11/9/2019 22:29

Didn’t VEC results state 61m shares would be bought in the share buybacks? Where is the liquidity for that going to come from when this trades 300,000 shares per day?

[polaris] 11/9/2019 22:17

In the end i added a little under 50k this afternoon. This ruling is pro-VEC for me and i expect the final ruling in the case will arrive close behind.

It looks like GSK are on the hook for around £160M up to 2021, with the possibility of Ellipta generics to come, which would have another $500M+ impact on sales p.a. of that series - the revenue generator for the respiratory division of GSK. Of course, this depends on the generic development being successful.

Something in the region of £750-800M would probably be accepted by the large shareholders. The EV today is around £400M net of existing cash - i.e. the £160M is not in the current price.

Looks like a no-brainer to me for a buy and break up while retaining the platform rights. If i were Hikma then i'd be trying to bid first to take everything from under GSK nose...

[rogerrail] 11/9/2019 19:35

VEC is now as close to a one way bet as you can possibly get, though far from saying it's a multi bagger. Still a good enough prospect to add today.

[alexchry] 11/9/2019 19:11

Popper Joe-good question, it would probably be Paul Fry, he is good at managementspeak, creating headroom and tracking to guidance are examples, so no doubt the company's future is in good hands!

[popper joe] 11/9/2019 18:36

This is the time when the company needs a strong CEO and board of directors who might use this latest judgement to best effect. It would be interesting if GSK now approached VEC with a view to buying the company. Who would lead such discussions for VEC?

[base7] 11/9/2019 16:23

Perhaps GSK will now settle with now refer to settle & not risk any interruption to their Ellipta sales.If there is no recovery in our share price before the 6p special dividend I expect to take mine in new shares