KiOR (KIOR)
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Based in Nashville, Tennessee Vanguard Health Systems (proposed VHS) is scheduling a $550 million IPO with a market capitalization of $1.6 billion at the price range mid-point of $22 for Thursday, June 23, 2011. |
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SUMMARY |
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. An acute hospital company growing by acquisition. |
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. In the last 18 months leveraged buyout shareholders paid themselves $775 million. |
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. VHS has committed to spending another $850 million -- which is a lot of money for a company with weak financials and an over leveraged balance sheet – to upgrade the recent purchase of the Detroit Medical Center. |
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VALUATION |
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. Weak financials: 0.2% profit margin for the nine months ended March 2011, interest took 86% of operating profits |
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. Annualized P/E ratio of 169 is too high for the sector. |
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. Most expensive of the hospital group in terms of P/E ratios and price-to-book value |
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Valuation Ratios |
IPO Mrkt |
Price / |
Price / |
Price / |
Price / |
% offered |
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Annualizing March 9 mos |
Cap (mm) |
Sales |
Earnings |
BookValue |
TangibleBV |
in IPO |
|
Vanguard Health (VHS) |
$1,573 |
0.3 |
169 |
5.4 |
-2.6 |
35% |
COMPARE
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Valuation Ratios |
IPO Mrkt |
Price / |
Price / |
Price / |
Price / |
Gross |
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Annualized March '11 nine mos |
Cap (mm) |
Sales |
Earnings |
BookValue |
TangibleBV |
Profit % |
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Vanguard Health (VHS) |
$1,573 |
0.3 |
169 |
5.4 |
-2.6 |
85% |
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Tenet Healthcare (THC)* |
$2,890 |
0.3 |
24.4 |
1.6 |
4.0 |
84% |
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Universal Health (UHS) |
$5,080 |
0.8 |
18.5 |
2.4 |
-10.1 |
82% |
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HCA Holdings (HCA) |
$17,480 |
0.6 |
17.1 |
-2.0 |
-1.3 |
84% |
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Community Health Sys (CYH) |
$3,820 |
0.3 |
14.3 |
1.7 |
-2.1 |
86% |
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Health Mgt Assc (HMA) |
$2,620 |
0.4 |
12.4 |
4.4 |
-8.2 |
86% |
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BUSINESS |
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As of March 31, 2011, VHS owned and operated 26 hospitals with a total of 6,280 licensed beds, and related outpatient service facilities complementary to the hospitals in San Antonio, Texas; metropolitan Detroit, Michigan; metropolitan Phoenix, Arizona; metropolitan Chicago, Illinois; and Massachusetts, and two surgery centers in Orange County, California.
. As of March 31, 2011, also owned three health plans with approximately 242,300 members. |
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WEAK NINE MONTHRESULTS |
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During the nine months ended March 31, 2011, revenue growth was limited by significant challenges including less demand for elective services, some of which related to a weakened general economy, and a shift from services provided to managed care enrollees to uninsured patients or those covered by lower paying Medicare or Medicaid plans. |
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LEVERAGED BUYOUT |
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Blackstone sponsored leveraged buyout |
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83% pre-IPO owned by Blackstone (66%) & Morgan Stanley (17%) |
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On September 23, 2004, VHS Holdings LLC and Health Systems Acquisition Corp., a newly formed Delaware corporation, The Blackstone Group, together with its affiliates acquired securities representing a majority of VHS’s common equity (the "2004 Merger"). |
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DETROIT MEDICAL CENTER |
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VHS has committed to spending another $850 million, which is a lot of money for a company with weak financials and an over leveraged balance sheet. |
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. Effective January 1, 2011, VHS purchased assets of The Detroit Medical Center, a Michigan non-profit corporation which assets consist primarily of eight acute care and specialty hospitals with a combined 1,734 beds in the Detroit, Michigan metropolitan area and related healthcare facilities. VHS paid cash of $368.1 million |
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. VHS committed to spend $350.0 million during the five years subsequent to closing for the routine capital needs of the DMC facilities and an additional $500.0 million in capital expenditures during this same five-year period
. DMC generated total revenues of $2.1 billion during its most recent fiscal year. |
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DIVIDEND POLICY |
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. On January 26, 2011, paid dividends to equity holders of $444.7 million in the aggregate. |
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. On January 29, 2010, repurchased 14,458,646 shares (adjusted to give effect to the expected stock split) of common stock from stockholders for a purchase price of $300.6 million in the aggregate |
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. In summary has paid out $775 million to shareholders since January, 2010. |
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USE OF PROCEEDS |
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. $512 million from sale of 25 million shares |
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. Repay debt |
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Vanguard Health Systems |
VHS, C, 6.5 |
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Post IPO shares: 71.5mm |
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Hospitals |
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June 30 fiscal |
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March 9 mos '10 |
Mrch 9 mos '11 |
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Nashville, TN, |
2008 |
2009 |
2010 |
2010 |
2011 |
IPO Mkt |
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Revenues ($mm) |
$2,776 |
$3,185 |
$3,377 |
$2,519 |
$3,394 |
Cap (mm) |
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Salaries & benefits |
$1,146 |
$1,234 |
$1,296 |
$963 |
$1,381 |
$1,573 |
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Salaries & benefits % of rev |
41% |
39% |
38% |
38% |
41% |
@$22 |
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Debt extinguishment costs |
--- |
--- |
$74 |
$73 |
--- |
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Impairment & restructuring |
--- |
$6 |
$43 |
$43 |
$6 |
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Operating profit |
$128 |
$161 |
$57 |
$19 |
$137 |
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Operating profit $ of rev |
4.6% |
5.1% |
1.7% |
0.8% |
4.0% |
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Interest |
$122 |
$112 |
$116 |
$85 |
$118 |
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Interest % of operating profit |
95% |
70% |
204% |
447% |
86% |
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Net profit (loss) continuing ops |
$3 |
$32 |
-$45 |
-$48 |
$7 |
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Net income (loss) % |
0.1% |
1.0% |
-1.3% |
-1.9% |
0.2% |
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Valuation Ratios |
IPO Mrkt |
Price / |
Price / |
Price / |
Price / |
% offered |
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Annualizing March 9 mos |
Cap (mm) |
Sales |
Earnings |
BookValue |
TangibleBV |
in IPO |
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Vanguard Health (VHS) |
$1,573 |
0.3 |
169 |
5.4 |
-2.6 |
35% |
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SCORECARD |
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Mgt |
Market |
Market Do- |
Proprie- |
Total |
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1-5, 5 is high |
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Growth |
mination |
tary |
rating |
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20 is perfect |
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2 |
2 |
1 |
1.5 |
6.5 |
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Valuation Ratios |
IPO Mrkt |
Price / |
Price / |
Price / |
Price / |
Gross |
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Annualized March '11 nine mos |
Cap (mm) |
Sales |
Earnings |
BookValue |
TangibleBV |
Profit % |
|
Vanguard Health (VHS) |
$1,573 |
0.3 |
169 |
5.4 |
-2.6 |
85% |
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Tenet Healthcare (THC)* |
$2,890 |
0.3 |
24.4 |
1.6 |
4.0 |
84% |
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Universal Health (UHS) |
$5,080 |
0.8 |
18.5 |
2.4 |
-10.1 |
82% |
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HCA Holdings (HCA) |
$17,480 |
0.6 |
17.1 |
-2.0 |
-1.3 |
84% |
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Community Health Sys (CYH) |
$3,820 |
0.3 |
14.3 |
1.7 |
-2.1 |
86% |
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Health Mgt Assc (HMA) |
$2,620 |
0.4 |
12.4 |
4.4 |
-8.2 |
86% |
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*THC: P/E eliminates $1mm tax credit in the September 2010 quarter |
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