Concordia Healthcare Corp. T.CXR.R

For Longs: Poster on SA with CXRX position @ $9 USD /share

[colt451]

I sent the poster on SA who had found the NCR article a message, he responded to another poster inquiring on the GBP pound conversion as follows:

Interesting question Alex. 

 

The GBP drop had a -$38M impact on EBITDA, exchange assumed at 1.31 for the remainder of the year lead to revised guidance of $510-$540M. Given they used a fixed exchange rate for 2016 I can only assume that any accretion in the GBP is positive to the bottom line and the spread is due to product revenue forecasts. 

 

A full recovery in the pound would add $38M back into EBITDA, assuming low end of guidance at $510M that would = ~$550M in EBITDA. 

 

I believe the GBP has recovered to 1.33 at this time so even that should increase the probability of hitting the mid point of EBITDA guidance at $525M. 

 

The stock price has gotten so cheap that an acquirer could even buy Concordia has a play on the pound recovery in 2-3 years. 

 

$510M EBITDA * 8X multiplier = ~$13/share takeover price today. 

 

2-3 recovery in pound to $1.4 GBP = $550M * 8X multiple = ~$20/share price = 53% return over 3 years assuming 0 debt paid down. Deleveraging of $150M/year + a pound recovery would boost the 2-3 year share price to $28/share for a 120% return in 2-3 years. 

 

On the fundamentals very little makes sense to me with Concordia right now. Even compared to Valeant, I had someone send me this: 

 

Concordia: 
P/E ratio = < 1.5 
EV/EBITDA = < 7.5 
Deleveraging/Year = $200M = $3.9/share = 53% of current PPS.

 

Valeant: 
P/E ratio = ~4.2
EV/EBITDA = ~8 

 

Concordia @ Valeant ratios 
P/E Ratio @ 4.2 = $Approx $20/share
EV/EBITDA Ratio @ 8 = $13-$16/share 

 

Buyout Rumours Comparable.
Concordia traded at $30/share on buyout rumours = $1.53B market cap, midpoint guidance was $625M EBITDA = 7.65X EBITDA multplier [pre-takeover share price trading assuming 0 premium] 

 

7.65*$525M midpoint guidance today = $14.9/share pre takeover share price trading assuming 0 premium. 

 

I cannot believe strategic acquirers are not looking hard at Concordia right now. Corporate tax inversion benefit + immediate accretive to EPS + potential to refinance debt at lower levels and pocket the difference + GBP recovery + access to international distribution. 

 

They have been tight lipped under the "strategic review" but suddenly Thompson is on BNN Friday? Clearly answers are coming this week.

 

This may go down in history as my worst trade...but all I can do is follow the fundamentals and ignore the noise until we get some clarity from the company.