November 4, 2016
Concordia International Corp.
Q3/16 Preview; FX & Debt Offering Changes Plus NHS Review
Our view: We have revised our 2016E and 2017E forecasts ahead of Concordia's Q3/16 results. Our revisions are mainly due to FX impact on the AMCo business in 2017 and interest revision associated with the $350MM senior notes offering. We have also highlighted a sensitivity analysis outlining the potential NHS mandated price cuts to certain AMCo products.
Key points:
Reports Q3/16 Results on November 7th. Concordia will report its Q3/16 results on November 7th. A conference call will be held at 8:30am EST and can be accessed at 1-888-231-8191.
Q3 revenue forecast of $204.4MM, Adj. EBITDA $119.6MM, Adj. EPS $0.94. Our revenue forecast for the quarter is $204.4MM vs. consensus of $207.1MM (FactSet: 5 analysts). We expect $119.6MM in Adj. EBITDA vs. consensus of $122.7MM (FactSet: 7 analysts). We forecast Adj. EPS to be $0.94/sh, vs. consensus of $1.04/sh (FactSet: 6 analysts).
2016 and 2017 Outlook Impacted by New Interest, Lower FX Rates. Total revenue is increased by ~$4.2MM in 2016E due to higher FX (GBP/USD) in Q4/16 and is lowered by ~$11.4MM in 2017E due to FX impact, slightly slower AMCo growth, and a price reduction on certain AMCo revenues in H2 2017, offset partially by the removal of the 7.8% NHS payment that we had previously applied to all UK revenues. Adj. EBITDA declines by ~$6.3MM in 2016E due to a decrease in margins and ~$15.5MM in 2017E, to $524MM and $484MM, respectively. Adj. EPS declines by $0.24 to $4.48 in 2016E and by $0.77 to $3.53 in 2017E.
Forecast Sensitivity Analysis due to NHS Pricing Risk. Following the progression of the UK’s Health Service Medical Supplies (Costs) Bill through the House of Commons, we have performed a sensitivity analysis to determine the magnitude that a potential mandated price cut would have on the 9% of revenues (and Adj. EBITDA) that could be impacted in 2017 and 2018. We anticipate any measures could come into place in the spring/early-summer of 2017. We have removed the 7.8% payment to the NHS, which represents ~$17.3MM in 2017E and ~$37.4MM in 2018E, from our forecasts. Instead, we have applied various potential price cuts to the potentially affected 9% of revenues. Our base case calls for a 25% mandated cut to the 9% of revenues highlighted by management. We also note that a decision is due by month-end on the CMA's investigation into Pfizer and Flynn Pharma, as we have previously noted.
Price Target Lowered From $14 to $10 Due to Revised Estimates Associated with lower FX, slower growth in AMCo, and new debt costs.