MYX - Mayne Pharma Group

[Knobby22]

Very good article from Mish about how the big drug companies collude with chemists, insurers and politicians to limit generic use while still charging huge prices. Also saw CEO is relocating to the US, good move. I am in a little bit of pain with this one.

https://mishtalk.com/2017/08/07/beh...ont-necessarily-reduce-prices-mish-proposals/

 

[JTLP]

Crunch. This is really on the nose now. Apparently the profit numbers were far below analysts expectations?

 

[PZ99]

Profit's fine it's the outlook that's bad because of increasing competition.

 

[skc]

Crunch. This is really on the nose now. Apparently the profit numbers were far below analysts expectations?

Profit's fine it's the outlook that's bad because of increasing competition.

Yes indeed. The profit from this year is only going to be slightly below consensus - I had $114.2m consensus NPAT vs ~$110m in today's forecast (before the pre-tax $25m impairment). And I believe the market has a pretty low expectation below actual consensus. When I read that news I thought the stock could easily rally on this, especially given the high short interests. I think that is why the share traded slightly stronger for the first 5 minutes or so.

But then the market quickly started to focus on the outlook. Whilst no actual numbers were forecasted, the generally tone implied that external industry condition is expected to get worse. So the stock turned weak and finished very much on its lows.

The chart is looking definitely bearish, the fundamentals is all about getting through this cycle. MYX's balance sheet appears in fine shape so it shouldn't do a Day 2 plunge like TEVA did.

 

[skc]

Yes indeed. The profit from this year is only going to be slightly below consensus - I had $114.2m consensus NPAT vs ~$110m in today's forecast (before the pre-tax $25m impairment).

The announcement said "Reported NPAT of between A$92-A$95m", and reported usually means including all impairments. If that is the case then my interpretation above would be correct.

However, one report I just read mentioned that the $92-95m range is "Adjusted NPAT", not including the $25m impairment. I am unsure how they come up with this interpretation, but if that is the case then it's a 18% miss on the NPAT line which is much more significant.

 

[McLovin]

The announcement said "Reported NPAT of between A$92-A$95m", and reported usually means including all impairments. If that is the case then my interpretation above would be correct.

However, one report I just read mentioned that the $92-95m range is "Adjusted NPAT", not including the $25m impairment. I am unsure how they come up with this interpretation, but if that is the case then it's a 18% miss on the NPAT line which is much more significant.

Don't forget the reported result also includes a first half one off $22.5m net gain from litigation.

Bets on whether that's the last write down on the generics business?

 

[Value Hunter]

This stock/company definitely looks like a falling knife. When it comes to companies that make big acquisitions and keep doing frequent capital raisings I like to take a guilty until proven innocent approach. I just assume things will blow up down the line unless I see compelling evidence otherwise.

 

[JTLP]

The announcement said "Reported NPAT of between A$92-A$95m", and reported usually means including all impairments. If that is the case then my interpretation above would be correct.

However, one report I just read mentioned that the $92-95m range is "Adjusted NPAT", not including the $25m impairment. I am unsure how they come up with this interpretation, but if that is the case then it's a 18% miss on the NPAT line which is much more significant.

That's what I thought. Plus mr market must too - smashed again today.

 

[skc]

This stock/company definitely looks like a falling knife. When it comes to companies that make big acquisitions and keep doing frequent capital raisings I like to take a guilty until proven innocent approach. I just assume things will blow up down the line unless I see compelling evidence otherwise.

I don't disagree that approach, but I believe in this instance the issues are more industry-wide rather than MYX- or acquisition-specific. Again, investors should at least be thankful that MYX balance sheet isn't highly geared.

Don't forget the reported result also includes a first half one off $22.5m net gain from litigation.

Bets on whether that's the last write down on the generics business?

True... but I am reasonably confident that my initial numbers were correct... i.e. reported NPAT includes the one-offs and the underlying NPAT is a bit higher than the reported number.

Accounting question for you McLovin if I may... if a company announces a $100m non cash write down for say full year 2017, does the D&A terms get reduced immediately? In other words, if a company announces an asset impairment and upgrades EBIT in the same breath... are they just talking $hit?

 

[McLovin]

True... but I am reasonably confident that my initial numbers were correct... i.e. reported NPAT includes the one-offs and the underlying NPAT is a bit higher than the reported number.

Yeah, I'm kind of confused by what you mean by this...

However, one report I just read mentioned that the $92-95m range is "Adjusted NPAT", not including the $25m impairment.

Are you saying that that report says the adjusted number excludes the $25m? So actual adjusted should be $67-70m? As far as I can see the write down and the litigation win cancel each other out more or less so that reported NPAT should approximate underlying. That is, underlying shouldn't be up around the $110m mark.

Sorry, I might be totally misreading what you're trying to say.

Accounting question for you McLovin if I may... if a company announces a $100m non cash write down for say full year 2017, does the D&A terms get reduced immediately? In other words, if a company announces an asset impairment and upgrades EBIT in the same breath... are they just talking $hit?

A management accountant would be better to answer this, or @Ves As the D&A expense is probably done at the end of the period (or maybe qtrly), I guess it would be done after the asset is written down (easier to move a portion of it to the once-off column, and get a bump in the underlying). Maybe the accounting rules stipulate current period d&a cannot be shuffled into a write down. That's a pretty good question. I'd like the answer too.

ETA: The more I think about it the more I'm thinking that you can't shove current period D&A into a writedown. It goes against the matching principle of accounting. If you write down the asset at the start of the period then it would be fine though.

 

[luutzu]

I don't disagree that approach, but I believe in this instance the issues are more industry-wide rather than MYX- or acquisition-specific. Again, investors should at least be thankful that MYX balance sheet isn't highly geared.



True... but I am reasonably confident that my initial numbers were correct... i.e. reported NPAT includes the one-offs and the underlying NPAT is a bit higher than the reported number.

Accounting question for you McLovin if I may... if a company announces a $100m non cash write down for say full year 2017, does the D&A terms get reduced immediately? In other words, if a company announces an asset impairment and upgrades EBIT in the same breath... are they just talking $hit?

Why should investors be "thankful" that MYX's balance isn't heavily geared? They just pony up some $888m didn't they? I mean for a company that, until recently, was $1.5b, with $888m just raised from shareholders... I'd say it's heavily geared, just geared with generous shareholders' cash instead of the cheaper ones any bankers would be happy to lend to any half-decent business.

To say that shareholders should be grateful... That's like you just gave the mafia money and be thankful that they have enough cash at the moment to be bothering you with another visit.

The company keep talking about "growth"... any fool can grow their revenue if they can raise and borrow money to acquire new businesses.

So they raised that Feng-Shui friendly $888m, borrowed and spend to some $1B to acquire the IP and working capital/technical transfer etc. This gave it EBITDA of $US94.5 ($A120m)... Let's be generous and uses FY16 ratio of gross profit down to net profit after tax, interests... so gross profit FY16 was $168.4m, NPAT $34.5m gives a ratio of 34.5/168.4 = .20.

It's crude and what not, but it's not an unfair approximation of gross profit down to net right? So that's some 20% profit to shareholders after the ITDA is deducted from the EBITDA... for the $A120m EBITDA, that's .2*120 = $24.6m net profit from Teva's $1,000m acquisition.

Management now reckon the useful life of the acquisition to be 15 years... at $24.6m net to shareholders a year... over 15 years that's 24.6*15 =$368.77m. So shareholders are not going to make money within that 15 years "useful life" of their acquisition, even if we allow for efficiency gains and cornering the market that's to come.

$1,000m/$24.6m = 40.65 years... That's how long, current year being representative of future performance, MYX shareholders would need to wait to see their $1b investment returned to break even. So there better be a whole lot of efficiency and massive potentials from those Teva IP in coming years.

Then there's the Wal-Mart and other "consortium" that just choke $US5m out of these Teva-acquired products in May and June alone. I doubt Wal-Mart and friends would do a "one-off" on generic guys.


Of course this is not to say that MYX will go broke, and not saying it because its current share price is down. Other generic drug companies' share price are also taking a hit. Just that if we study MYX's history and its most recent, biggest, boldest move... It's not a blip or something shareholders should just shrug off as market sentiment or shorters doing their dirty work.

 

[skc]

Why should investors be "thankful" that MYX's balance isn't heavily geared?

They should be thankful because if MYX is heavily geared the share price would be down 40% not just 15%. And without too much debt it gives them a chance to ride out the cycle (if it is indeed a cycle and not structural). It's the same as saying to someone who just survived a car crash that they are lucky to be alive. No there is nothing lucky about a car crash, but it's all relative.

I'd say it's heavily geared, just geared with generous shareholders' cash instead of the cheaper ones any bankers would be happy to lend to any half-decent business.

Sure. Feel free to define the word "gear" to mean whatever you like.

So they raised that Feng-Shui friendly $888m, borrowed and spend to some $1B to acquire the IP and working capital/technical transfer etc. This gave it EBITDA of $US94.5 ($A120m)... Let's be generous and uses FY16 ratio of gross profit down to net profit after tax, interests... so gross profit FY16 was $168.4m, NPAT $34.5m gives a ratio of 34.5/168.4 = .20.

No. This is wrong. Gross profit and EBITDA are different things. You have calculated a NPAT to gross profit ratio and applied it to EBITDA. If you want to use the NPAT/EBITDA ratio it is 51% (45.2/88.5) for FY16.

Management now reckon the useful life of the acquisition to be 15 years... at $24.6m net to shareholders a year... over 15 years that's 24.6*15 =$368.77m. So shareholders are not going to make money within that 15 years "useful life" of their acquisition

Again this is totally wrong. The return on an investment depends on the cashflow it can generate, not the NPAT.

Imagine there is an investment where you can buy a $9m machine that generates $7m of cashflow a year for 3 years, after which the machine is worthless (so you depreciate the machine over 3 years). The NPAT each year is $2.8m ($7m gross profit less $3m depreciation less 30% tax). So in 3 years total NPAT is only $8.4m hence it's a terrible investment using your method of assessment.

But in reality, the investments yields a total cash of $17.4m over 3 years after paying tax of $3.6m, and it is absolutely worthwhile.

I am not saying MYX made a good investment. I am just pointing out that your method of assessment is wrong, and the calculation within your assessment is also wrong.

Sorry, I might be totally misreading what you're trying to say.

Don't worry about what I was saying. It's only 1 piece that I read which that has raised this... it will all be clear come the actual report anyway.

ETA: The more I think about it the more I'm thinking that you can't shove current period D&A into a writedown. It goes against the matching principle of accounting. If you write down the asset at the start of the period then it would be fine though.

Makes sense. Let's see if we can get a professional opinion.

 

[luutzu]

They should be thankful because if MYX is heavily geared the share price would be down 40% not just 15%. And without too much debt it gives them a chance to ride out the cycle (if it is indeed a cycle and not structural). It's the same as saying to someone who just survived a car crash that they are lucky to be alive. No there is nothing lucky about a car crash, but it's all relative.

Alright, looking on the brighter side of things. Fair enough.

Sure. Feel free to define the word "gear" to mean whatever you like.

Shareholders' money outside of MYX ain't free, right? So when shareholders are given the rights to take from their own pocket, hand it over to MYX management to fund new ventures... it's not exactly the same as money MYX has made and are reinvesting it instead of paying a dividend.

It could also be argued that having just raised cash to be in a fortunate financial position (where the share hasn't crashed further)... if MYX is to face more financial headwind, which is highly likely given the resources that's needed to merge the new acquisition, promote, manufacture, distribute... and being up against the likes of WalMart, pushing MYX to now think of "expanding" its sales into specialty pharmacies and other channels... These stuff costs money.

Now that shareholders had just pony up the cash, if there's a headwind and new cash is needed... who's going to write the cheques? Shareholders are more generous and understanding than bankers, but how much more would they be willing to fork out now?

No. This is wrong. Gross profit and EBITDA are different things. You have calculated a NPAT to gross profit ratio and applied it to EBITDA. If you want to use the NPAT/EBITDA ratio it is 51% (45.2/88.5) for FY16.

View attachment 72186

Dude, re-read what I wrote. The idea was to use some "crude" method to gauge an approximate ratio of EBITDA down to NPAT. I didn't say EBITDA was the same as Gross Profit. In fact, I said I was being generous and not do it...

So they paid $880m [or so?] to Teva for the IP. Those are to be written down in 15 years. $880/15 = $58.7m in write-downs per year? That's going to be in one of the D or A right? Each and every year for 15 years? Give or take depending on whatever straight line or acceleration period etc. But around that number over the next 15 years.

Then there's the interest incurred on the new debt to help pay for the acquisition... Say 4% on some $200m [from memory?].

But alright, let's use FY16 as a very rough guide to get the ratio...

btw, your "NPAT/EBITDA ratio it is 51% (45.2/88.5)" uses the "underlying" NPAT... there's a few one-offs in that figure versus the $34.523m Reported figure... and should we really use the $37.31m "comprehensive" figure that add the exchange rate gains?

We're arguing over a couple of millions in earnings for a $1.5b company.

But alright, let's use the FY16 figures as representative of that future ratio, and use its EBITDA and underlying earnings.

So that's $45.2/88.5 = 51%. At the $A120 EBITDA from Teva that's $61.2. $1000/61.2 = 16.3 years.

A 15 year to worthless assets will take 16.3 years to break even?

Don't know man, 16 years is a long time in medicine.

Again this is totally wrong. The return on an investment depends on the cashflow it can generate, not the NPAT.

Imagine there is an investment where you can buy a $9m machine that generates $7m of cashflow a year for 3 years, after which the machine is worthless (so you depreciate the machine over 3 years). The NPAT each year is $2.8m ($7m gross profit less $3m depreciation less 30% tax). So in 3 years total NPAT is only $8.4m hence it's a terrible investment using your method of assessment.

But in reality, the investments yields a total cash of $17.4m over 3 years after paying tax of $3.6m, and it is absolutely worthwhile.

I am not saying MYX made a good investment. I am just pointing out that your method of assessment is wrong, and the calculation within your assessment is also wrong.

Yea, I haven't seen the cash flow on Teva's acquisition so who knows.

Just that if history is any guide for MYX, its acquisitions hasn't returned the kind of cash flow a good company would have.

 

[Miner]

Gees
What a high quality of discussions with fact and figures .
I am in all honesty felt humbled and failed to recognise how come ASF should not attract more members.
Joe
Please do more to make sure ASF gets recognised.
Each of recent postings are so good which i dont get in motley fool, fat prophets or Potter Publishing on which i paid fortune and found them not value for money.
I was tempting to buy myx until i read the articles here.
So put a buy order at 50 cents price with a hope it will not reach below that.
Cheers

 

[galumay]

So put a buy order at 50 cents price with a hope it will not reach below that.

If you could buy MYX for 50c it would be the bargain of the year! All you need with MYX to make plenty of money is patience, it has been massively oversold IMO.

 

[McLovin]

Dude, re-read what I wrote. The idea was to use some "crude" method to gauge an approximate ratio of EBITDA down to NPAT. I didn't say EBITDA was the same as Gross Profit. In fact, I said I was being generous and not do it...

It's not a crude method, it's just plain wrong. You used a margin of 20% when the real margin was 50%. You'd do yourself a huge favour if every now and then you just admit, like the rest of us, that you make mistakes.

 

[luutzu]

It's not a crude method, it's just plain wrong. You used a margin of 20% when the real margin was 50%. You'd do yourself a huge favour if every now and then you just admit, like the rest of us, that you make mistakes.

I'm not saying all these to say that I don't make mistakes, or to offend or insult others who bought MYX. I've made plenty of investment mistakes and have said it here and there on this forum.

So just to be clear, I'm just trying to have a discussion where I can learn something that could be use in other investment decisions. I mean, I don't think any of us here wants to, or could, move markets so it's no use trying to prop the stock up.

Now that that's out of the way, if you don't like to continue then ignore. If you want a friend, get a dog.

-----------------

The aim of getting a ratio was to convert the reported EBITDA down to NPAT.
NPAT at 50% or 51% of EBITDA is not possible.

First, the recent update of "Underlying EBITDA of between A$212 - A$216 million" with "Reported NPAT of between A$92 - A$95 million"... 92/212 = 43.4% to 43.98%.

You'd get to 49% if you reduce that EBITDA with the $25m non-cash impairment. But then does the reported NPAT also need to include [reduce] by that $25m as well? Not clear from their updates, but we'd think they'd need to.. if not to that bottom line, then to that underlying or whatever earnings-if stuff they do nowadays.



Second, Teva's portfolio EBITDA was $US94.5m, or about $A120m.

For that Teva's NPAT to be at 50%, it'll be $60m after taking out the ITDA.

MYX paid Teva some $880... writing this all down in 15 years... that's amortisation at $880/15 = $58.67m a year.

Debt was also raised for the purchase [total expenses on the purchase adds to some $1B]. So interests and taxes will have to be paid... That will push the ITDA past the $60m [or 50%] mark.

So 50% NPAT from EBITDA is not possible.

 

[McLovin]

Second, Teva's portfolio EBITDA was $US94.5m, or about $A120m.

For that Teva's NPAT to be at 50%, it'll be $60m after taking out the ITDA.

MYX paid Teva some $880... writing this all down in 15 years... that's amortisation at $880/15 = $58.67m a year.

Debt was also raised for the purchase [total expenses on the purchase adds to some $1B]. So interests and taxes will have to be paid... That will push the ITDA past the $60m [or 50%] mark.

So 50% NPAT from EBITDA is not possible.

You're not buying EBITDA, you're buying cashflow. EBITDA's usefulness is as a short-run cashflow proxy (and in industry comparisons), but you've got to know what makes up the DA, and what is or isn't an expense going forward. skc gave you an example as to why your line of logic is wrong, I even mentioned the EBITDA and the use of DA to NPAT calculation way back in post 126...

If that purchased EBITDA falls to bottom at the same rate (it will be less, I assume, because of the purchased intangibles – but the amortisation around the customer contract stuff can be disregarded, imo)

The purchase of the portfolio is a sunken cost. The amortisation accounting that goes along with it is not relevant to someone looking to buy MYX today, nor is it relevant to measuring the competitive performance of the portfolio. If you were going to buy the entire Teva portfolio off MYX would you give two sh!ts what accounting charge they were using to amortise the price they paid for it?

 

[skc]

You're not buying EBITDA, you're buying cashflow.

McLovin, I think there's enough discussion here for the readers to interpret the arguments and numbers... So I think it's best to reassess whether you want to engage with luutzu further (assuming you would like to remain sane).

 

[McLovin]

McLovin, I think there's enough discussion here for the readers to interpret the arguments and numbers... So I think it's best to reassess whether you want to engage with luutzu further (assuming you would like to remain sane).

Yes, you're right. I'm really just laying out a path for any newbie who stumbles on this thread.