Independent board would be good. But Meritas really does have substantial up dies, and has been in the works for 3 yrs. CEO here owns more shares also than the other names.
We'll see - this is a slow qtr, but hopefully some info.
Why does OSUR trade at such a high multiple? Is there something exciting in the hopper there, or just stock price inertia?
It's a little soon I think to call TRIB management underperforming. Am I pleased about recent SG&A trends and the exchangeable issuance? Certainly not. But if Meritas progresses, and I haven't seen anything yet to suggest it won't, this could be a very nice performing for the next few years.
I do agree with another poster that dividend plus dilutive equity issuance is not smart. Skip the dividend and reduce the potential dilution. Or skip it and buy back shares now to reduce future dilution.
Anyway, tomorrow should be interesting. The EPS #s look pretty undemanding but assume a lot of discussion will be around what they plan to do with their pile of cash.
I'm not thrilled with the exchangeable either, but the option math is quite different from what you are suggesting. There are various ways you could value, but one would be to look at how much interest the lender gives up, and what they get in return. So say on non-exchangeable 30 year debt TRIB would have had to pay 6% - the lender is effectively paying 2% of principal for a one year option that was 15% out of the money at the time. Now you're right the option is much longer term than that, but the lender has to effectively cede that extra interest annually.
My sense is the exchangeable was a good deal, but not as good as you seem to suppose. For it to really work out the shares have to trade substantially above the current price, benefitting all holders. And of course TRIB can buy back shares at lower prices to reduce potential dilution (which I don't think they will do, but they could). In the meantime they do benefit from low cost funding, if they invest the proceeds intelligently. Contrary to the other post, it would appear to me most of their M&A has produced decent returns.
How do you quantify Cuba, even approximate numbers (ie, to determine it's big)? You see the benefit as shipping in, out, or both?
Focus is on Pork because that's where most of the profit has been. But agree, Marine should have a better year.
these guys just like carrying a lot of cash - they are on the extreme end, but there are other commodity oriented companies who take a similar approach - and they will do an occasional acquisition, but they are opportunistic - its a well run business, but earnings are susceptible to commodity price moves, particularly quarter to quarter -
On your corn question, they won't disclose this level of detail - but I'm not sure you see an immediate benefit anyway on pork sale margins - I am assuming a FIFO approach to CGS for hogs - so it would be feed price over last 6 months on average hog - and of course its not just the corn price, but the spread between corn and hog price -
PS - I guess on R&D you're referring to the capitalized R&D - I'm not sure this is creative accounting, but I take your point - it is a use of cash. They still don't need 100 mil additional funds to run the business.
This is a co that generated op cash flow of 20 mil in 2014 and didn't have any debt - to suggest they needed to raise 100 mil for working capital is nonsense.
I do think they could easily spend 50 mil launching Meritas. But I think that's probably a good use of capital, assuming they get the kind of traction everyone is hoping for.
As far as stagnant earnings, they have had steady gross profit growth but it was fully offset in 2014 by higher SG&A. Some portion of that SG&A is Meritas and redundant facilities. The latter should be gone, higher Meritas SG&A will cont. to depress numbers in 2015. I would hope to see some EPS growth though in 1Q - but agree recent headline numbers haven't been exciting. And then 2Q numbers have to overcome higher interest expense, unless they've deployed capital at that point.
On 'creative accounting', what evidence do you have of this? I can only guess you're suggesting they capitalized some of the R&D relating to acquisitions. Not sure how you could know this though.
I agree with you on this - it would likely be very accretive - also TRIB already has a presence in Buffalo, and maybe additional N. NY assets would have some advantage longer term - but if you listen to TRIB's language on recent calls, really seems like they want to invest more in auto-immune where they are earlier to market -
Not that they couldn't do both -
Are you long TRIB as well as CEMI?
CDC rec last year was for 4th gen lab testing for HIV, given it has the earliest identification of HIV - this wasn't great news for either TRIB or CEMI who both manufacture rapid response tests - hence TRIB's Africa focus, CEMI appears to be focusing on South America - TRIB's franchise will be supported by the addition of syphilis test, which is only FDA approved in market right now - so prob. not unreasonable to expect flat to even down HIV for TRIB but with the segment still growing as syphilis test ramps
The best positioned right now on HIV testing is ABT with the Architect platform -
I believe all of the M&A over last 3 years has been private cos, but what are some plausible public targets?
If you listen to CEMI's last conf call, they aren't really targeting Africa as an end market at this pt - so they really aren't competing in that space - and it sounds like some portion of the US market they expect to continue to sell through their legacy lateral flow product - maybe DPP is too expensive except for specialized applications? Or is there some other drawback (ie, why not transition the entire product line...)
Anyway, HIV cont. to look like a crowded competitive space, and not clear to me there will be significant share shifts one way or another - looks more like gradual changes -
PS - I could see a rationale for CEMI, if they could buy for 75 mil and reduce SG&A could be very accretive - this hasn't really been their approach historically - they have bought earlier stage companies with high potential technology -
But there's a first for everything...
They got FDA approval for type 1/2 test last yr which broadens their mkt. as of last qtr they grew both US and Africa (up 9%). And you assume they won't introduce their own next gen version - do you have any way of knowing this?
That said HIV a crowded space - which I think makes less likely they'd do a large acquisition in this area. I think more auto immune technology prob. Would be more interesting . My bet would be 50 cash on hand for Meritas launch, 35 to 50 for acq which brings in scalable new technology, balance for working cap.
Possible the next acq is bigger.
I model HIV + plus new syphilis to be slow growth. Think that's realistic for now. Maybe a yr from now HIV does begin to flatten or tail off - but the story at that pt is all about diabetes and cardio.
PS - not trying to give you a hard time - maybe CEMI would be attractive takeout - is it just HIV, or do they have other tests in development?
I reviewed various comparative studies on tests - appears that 4th generation POC tests like Abbott Architect may have best accuracy as of 2014 study - but may have other negatives for 3rd world, like cost - any thoughts? Studies suggest TRIB 3rd generation product still competitive -
why are CEMI's HIV sales falling while TRIB's are rising? Not trying to be argumentative, just curious, if CEMI's platform really is better as you suggest...
They don't need that kind of money to finish the Meritas trials - they can finance that out of cash flow. They probably need significant capital to finance the actual launch - I think the payback on Meritas device probably about one year, so they are incentivized to get as many devices into the field as quickly as they can - that's large upfront investment
Agree there will be more bolt on acquisitions
Wouldn't assume the shelf is going to be majority equity - there is room to issue debt for a cash generative acquisition.
my guess is they are allocating about 35-40 for acq., 35-40 for Meritas launch, and rest as dry powder - figure if its 15k per Meritas machine and they want to get 3000 machines into field year one at leased or subsidized pricing, that is a 40+ mil cash outlay -
we'll know more after the call, but it's possible the timing of the raise suggests possible Meritas launch earlier than previously thought -