RE:A few items on Knight Well said - lots to think about in your comments.
The Raymond James Analyst likely went to greener pastures (or more money) so he likely resurfaces under a different company ... last time that happened, it happend quickly. Will see.
Branded Generics ... you didn't mention Mexico (neither did I earlier) ... wondering if that will also come into play as I'm sure there is a big strategic interest in growing Mexico for the future.
With respect to clarity and visibility ... hope we get more of that as Samira gets more comfortable in LATAM and as more questions are asked. Would love to get back to Q&A at the AGM for shareholders to participate ... and ... for alalysts to request more from the company during Q&As.
longrun86 wrote: Hi folks,
This message may fall into the category of TLDR.
A few things I wanted to comment on.... apologies for the length in advance.
1) Raymond James Coverage: I received a notification alert that they are suspending coverage on Knight because the RJ analyst covering the sector has left. Hopefully this is temporary.
2) Argentina Manufacturing & Branded Generics: Knight has 3 production facilities for branded generics and 48% of the total headcount located in Argentina. Is there value in Knight diversifying the branded generic manufacturing to Brasil or Colombia? With the hiring of the new VP in Argentina as well as the branded generics product pipeline, it is very clear that Knight is seeing an opportunity here! My investment experience with JNJ has lead me to believe that this can be a profitable path if done correctly and in some cases has a stabilizing effect on returns compared to battling regulators on price increases in a potentially hostile rate regulated environment. What is not clear to me is what the acquisition market looks like for branded generics in LATAM and is Knight positioning itself for this to be the an area of capital deployment through acquisition. If we have learned anything about inflation over previous cycles is that it is much nicer to own great brands where you can pass inflationary costs on based on consumers choice rather than negotiating with governmental agencies who refuse to acknowledge real inflation rates in economies!
3) Financial Forecast: I like there approach to guidance being conservative; however, it would be nice to get a better sense of the timing regarding the change in capital approach based on the sunset of funds and direct investments. There is a substantial amount of capital that needs to be redeployed into the operations and I am of the view that the incremental rate of return needs to be equal to or greater than these investments (especially higher than the loans). My view is that the sunset capital is deployed on a return on equity that is high-teens to low 20's on a pre-synergy basis where the prospective synergies are worth another 1% to 5% in margin.
4) Forecast LATAM Operations: Covid is winding down and the operations are winding up. However, when you look at Q4 results and the historical cash flow associated with the Biotoscana operations, they are still underwhelming compared to the pre-acquisition period. Cleaning things up is expensive and time consuming; however, it would be nice to hear what others think these operations "should" be doing from a operating income, operating cash flow, and free cash flow perspective. I am alway uninspired by the DCF that analysts put together as the underyling assumptions on margins and growth for Knight are underwhelming. For whatever reason, when people put together these "Sum of Parts" valuation analysis they never really put together the view of capital redeployment and what the operations "should" do in a normalized environment. I know that "synergies" is an overhyped word of analysts and investment bankers; however, surely, there are at least cost synergy opportunities in this platform. For example, you use the same distribution channels, its the same software system, its likely the same staff (plus maybe a few more), it's the same head office staff... you get the idea. Knight itself has never articulated much on this (unless I am mistaken, in which case please correct me); however, I think we are coming to the time when they will have greater visibility on this and it would seem appropriate to comment. I would be interested in hearing the view of others.
I appreciate all forms of constructive comments relating to these matter (bullish or otherwise); however, please do not bother me with junkmail type posts.
Sincerely,
LR