Author Topic: NVTR - Nuvectra  (Read 22279 times)

eclecticvalue

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NVTR - Nuvectra
« on: March 27, 2016, 06:15:19 PM »
This is a spin-off from GreatBatch (GB) . It was spun off because GreatBatch wanted to be more focused on manufacturing other companies medical devices. Instead of their own.

This was spun off in March 14th in one week the company lost about 57% of it's market cap. I think it was because of forced selling from funds that didn't want to hold on to it anymore. Because it is a small cap company. Currently trading below net cash.

I am thinking why not buy below net cash because once the next quarters numbers are announced then the market will realize this company has money on the balance sheet. I think it will be re-rated.

The risks to this investment is the operating expenses. Because last year the expenses were $26 million with $75 million of cash on the balance sheet. They have only three years of operating expenses. They could rein in on those expenses. If they can increase their sales and EPS. I think this company could do very well. This is an early stage company btw.

So I am hoping the selloff was due to forced selling and not other factors.


kab60

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Re: NVTR - Nuvectra
« Reply #1 on: March 28, 2016, 02:56:36 AM »
What is compensation like? Do insiders have skin in the game? How are their incentives? What about valuation - hopefully they have sales and not only expenses?

hillfronter83

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Re: NVTR - Nuvectra
« Reply #2 on: March 28, 2016, 06:16:59 AM »
What is compensation like? Do insiders have skin in the game? How are their incentives? What about valuation - hopefully they have sales and not only expenses?

I bought a few shares for a speculative/monitor position. CEO owns 3% via RSU. However, he sold piece of the company back to GB around $15/share before the spinoff and cash injection, so theoretically it could worth about $22/share after GB put in $7.5/share cash.

eclecticvalue

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Re: NVTR - Nuvectra
« Reply #3 on: March 28, 2016, 06:29:50 AM »
The revenue last year was $5 Million and Operating expenses was $26 million. If the company can increase sales and EPS. This stock worth more than $4.64 a share. And it has stop the cash burn because they have enough cash for about 3 years. Now they could cut reduce expenses. That would be nice. I am awaiting quarterly numbers.

stockspinoffinvesting

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Re: NVTR - Nuvectra
« Reply #4 on: April 10, 2016, 09:01:59 PM »
If anyone is interested, I just completed a full investment write up:
http://stockspinoffinvesting.com/micrcap-stock-spinoff-trading-below-book-value/

Here's what I wrote regarding valuation.

Nuvectra Solvency

One of the conditions that needed to be met for Greatbatch to spinoff Nuvectra was the board of directors of Nuvectra had to receive an opinion from an independent valuation firm confirming the solvency acceptable to Greatbatch.  While this doesn’t give us a hard valuation number, it is nonetheless, reassuring.

Sale of Minority Interest in Nuvectra

Prior to the fourth quarter of 2015, Greatbatch owned 89% of Algostim and Pelvistim (Nuvectra’s two main products). In the fourth quarter of 2015, Greatbatch purchased the outstanding 11% of Algostim and Pelvistim for $16.7mm. This transaction values those two products at $152mm. Add $68mm of net cash and you have a total value of $214mm. This compares to a current market capitalization of Nuvectra of ~$70mm.

One other point regarding this purchase. Included in that $16.7mm was $6.9mm which was paid to Drees Holding, LLC, which is a limited liability company of the Nuvectra’s CEO Scott Drees. Drees had acquired his interest in Algostim and Pelvistim in connection with a long term consulting contract prior to him becoming CEO in July 2015.

A couple thoughts. I don’t know how Greatbatch got comfortable with the $152mm valuation. Because obviously there are conflicts of interest both perceived and perhaps real. I image Greatbatch’s board of directors got comfortable with the valuation by hiring a third party valuation firm. To cover their liabilities, I imagine they were conservative, but who knows.

Value of Intellectual Property Portfolio

In sum, Greatbatch has spent ~$125mm on Nuvectra which includes past R&D and acquisitions. As a result, Nuvectra has 107 U.S. patents (an additional 77 pending) and 49 foreign patents (an additional 43 pending). Add $68mm of net cash to that prior investment yields a total value of $193mm. This compares to the current market capitalization $70mm.

Piper Jaffray Price Target

Piper Jaffray has a $25 price target on NVTR. Here’s how Piper gets to its target:

“Our $25 price target is based on an enterprise value of 2.7x our FY 2018 revenue estimate of $78.3mm discounted one year at 10%, and assuming $88.7mm net cash and 11.1mm shares outstanding. We feel it is appropriate to value NVTR on 2018E revenue as it encompasses a more accurate portrayal of the enterprise by including revenue from the PelviStim SNS segment as well as allowing for value of a complete, maturing Alogovita SCS salesforce to be reflected.”

I also ran an EV/Sales and Price/Book comp analysis vs. med tech peers. Its available here:
http://stockspinoffinvesting.com/micrcap-stock-spinoff-trading-below-book-value/

Looks very cheap on both EV/Sales and Price/Book.

valuechaser

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Re: NVTR - Nuvectra
« Reply #5 on: April 14, 2016, 07:55:17 AM »
I read the Form 10 on this some time ago so I'm a bit fuzzy on the details but what attracted me to the company was its small size (less followed, likely to be sold post spinoff, etc.), the initial sell off and the cash on balance sheet. After I read the Form 10, the feeling I got was this is not the type of spinoff Greenblatt references in his book because this company doesn't have an established business. There are no historical financials / revenue / EBITDA one can look to.

The cash on hand is going to be used to build a sales force and pay other operating expenses and will likely be depleted in a couple of years. As such, you basically have to be comfortable with the company's ability to execute its build-out and I found this particular risk very hard to handicap. Also, I believe the Form 10 mentions that the company competes with some giants that are well capitalized and this scared me away as well so I didn't bother spending much more time on it.

stockspinoffinvesting

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Re: NVTR - Nuvectra
« Reply #6 on: November 27, 2016, 06:23:48 PM »
I wanted to restart this thread as the previous one on Nuvectra had gone a little stale.

Nuvectra is a med tech spinoff of Greatbatch, an outsourced med tech manufacturing firm.

Here is my investment thesis in a nutshell:

1. Nuvectra's management team is excellent (formerly at STJ, BSX and MDT) and heavily incentivized to make the stock work (10%+ of shares outstanding are reserved for management incentives).

2. Key product (Algovita) is off to a strong start with 105% quarter over quarter growth in most recent quarter. Numbers are small at this point, but it looks like Algovita is launching well. Importantly NVTR's sales force build out is on track. There are currently 42 sales reps who are fully trained and the company expects 50 by year end, 100 in 2017 and 225 in 2018.

3. NVTR has $65mm of net cash and a market cap of $60mm. Studies show that negative enterprise value stocks go on to generate very strong returns in the subsequent year. Usually negative enterprise value stocks are broken companies, but that is not the case here.

4. NVTR trades at a huge discount to peers on EV / Sales and Price / Book basis. If NVTR is able to execute its launch, the stock should be worth several multiples of its current price.

Full investment case here: http://stockspinoffinvesting.com/micrcap-stock-spinoff-trading-below-book-value/

Updated thoughts after most recent quarter here: http://stockspinoffinvesting.com/nuvectra-spinoff-updated-thoughts/

Thoughts?

wjsco

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Re: NVTR - Nuvectra
« Reply #7 on: December 22, 2016, 12:15:27 PM »
I have so much amazing information on this company. I'll try to post in the next couple of days. don't think i've ever seen anything like it...

stockspinoffinvesting

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Re: NVTR - Nuvectra
« Reply #8 on: December 26, 2016, 03:10:59 PM »
wjsco, would be very curious to hear your thoughts on the stock...

wachtwoord

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Re: NVTR - Nuvectra
« Reply #9 on: December 27, 2016, 08:30:53 AM »
Thanks for this topic and the links. I bought a position.
"Beware of he who would deny you access to information, for in his heart he dreams himself your master"

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