Sunday, 23 July 2017

Rowsley (Remisier King Midas Touch)



The Remisier King is waving his Midas touch yet again. His earlier moves have so far been disappointing. The solar story was full of promise with supposedly guaranteed profits seems to be now just a castle in the sky situation. Next was the Iskander grand plan which seems to have wind down given the huge oversupply situation.

Currently, Rowsley operations are mainly in the hospitality business in UK, their architect business through RSP and their real estate development in Vantage Bay Healthcare City.

With the recent deal of injecting Thomson Medical and TMC Life Sciences, could it be the winning touch for a sustainable uptrend in the stock?

Let's look at the numbers. Rowsley is going to purchase Mr Lim's stake of Thomson Medical and TMC Life Sciences at 1.9 billion sgd dollars. The takeover of Thomson Medical in 2010 was at a price of 513 million dollars and at a valuation of around 3.4X book value and 30x PE. TMC Life Sciences are currently trading at a PE of 66X.

In a Business Times article dated September 13th 2016, it was revealed that the revenue growth of Thomson Medical went up by almost a fold and assuming profits went up by the same rate. The current state of Thomson Medical should be worth close to 1 billion with the same valuation that Mr Lim took over considering the growth of their earnings. It seems to be a fair value as Raffles Medical is trading at 30x PE and 3.2x book value currently. Also, in the article, the CEO was saying if they were to list, they are able to get a valuation of 2 to 3 billion dollars but they are aiming for a 5 billion dollars valuation. I am not sure how did he get such a valuation unless they are intending to list at an inflated valuation and there are takers for it. 

Here is the article:

For TMC Life Sciences, it is trading at a PE of 66X which is even higher than IHH of 56X, so i presume Rowsley is paying a high price for this asset and Mr Lim's stake will be worth around 320 million Sgd dollars based on their current market capitalization.

Doing up the sums, a fair value for the assets could be around 1.3 billion dollars but he is injecting it in at a valuation of 1.9 billion dollars. The deal is structured by issuing 25.3 billion of Rowsley shares to Mr Lim at a price of $0.075. Given the recent decline in healthcare stocks, perhaps it was an optimal move to try to do the deal at a good valuation.

Valuation

To make things simplistic, we will assume that 1.9 billion dollars is a fair value (After my analysis, I think Rowsley overpaid thou) for the assets and assuming their current business will be trading at their book value (Around 400 million) given that it is loss making. We will have total shares of 30.5 billion excluding the warrants that will be issued with the deal. The valuation of Rowsley should be around $0.0755 (1.9 billion plus 400 million divided by 30.5 billion). Their warrants are going to be issue at exercise price of 9 cents and 12 cents for piggyback version. Currently, the price of Rowsley seems to be defying my valuation. 

As with all the Midas touches so far, the price of Rowsley have shot up tremendously and eventually came back to reality. Unless, there are further positive developments in their existing business or the profits or growth prospects of Thomson Medical are way above my estimates. My view is at best Rowsley is worth 10 to 12 cents and this valuation is consider rich.

Do take note, lots of assumptions goes into this valuation and so kindly do your own due diligence. I would term this as a trading stock at the moment and usually trading stocks do not follow fundamentals when the animal spirits are high. Do have a proper risk management in place.

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