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Investment Q&A

Not investment advice or solicitation to buy/sell securities. Do your own due diligence and/or consult an advisor.

Q: Latest update from CXR:

http://www.newswire.ca/news-releases/concordia-provides-update-on-term-loan-financing-and-reconfirms-blended-interest-rate-of-approximately-725-post-amco-acquisition-534766791.html

The loans in connection to the financing of AMCo have been fully allocated and CXR has reaffirmed the 7.25% blended interest rate.
Read Answer Asked by Arneh on October 20, 2015
Q: A follow-up regarding the senior notes announced today at 9.5%.

Per http://concordiarx.com/concordia-provides-update-on-amco-financing-and-capital-structure-post-amco-acquisition/ , the maximum blended interest rate (including the new $790m of senior notes) is 7.25%. Therefore, if I'm understanding correctly, the senior notes announced today aren't priced any higher than CXR was expecting them to be on Oct. 15.
Read Answer Asked by Arneh on October 20, 2015
Q: Hello Team,
there have been more than enough inquiries about this company, here is another. Today, a 'Marketwatch' article indicated that the company has now determined the issue of unsecured senior notes of US$790m at 9.5%. There appears to be a negativity about the company and its difficulties in financing the acquisition. Would you be able to find out with respect to short sellers whether the stock suffers from serious manipulation? And if so, why is there no news from the company?
Communication should be key!
Thanks
Read Answer Asked by Sigrid on October 20, 2015
Q: What's your take on the recent press release by Concordia regarding the offering of senior notes?

http://concordiarx.com/concordia-healthcare-announces-pricing-of-offering-of-senior-notes/

CXR seems to be conducting business as usual, getting deals done and closing the AMCo acquisition. The continued hammering of the share price is baffling.
Read Answer Asked by Arneh on October 20, 2015
Q: CXR hit $35. I have two questions. First, Jason Donville said that he called brokers and was told that a lot of the shares were owned on margin. Can we trust it is true and can we verify this using a bloomberg terminal or website? If not, it seems like a good way for a portfolio manager like him to encourage us to buy the "bag holders". Secondly, there is news today about Concordia offering "senior notes". Is there something not to like there? I don't know what "senior notes" are. Thank you!
Read Answer Asked by Matt on October 20, 2015
Q: How much worse could this media nightmare get?

Reading everything that I can get my hands on, re: Concordia, the consensus is that "everything is fine" in the accounting department, and once the media flak settles down, this is still a good company, overall. We may all be in for quite a ride, but it will survive. That's what everyone is saying.

Nonetheless, does this not beg the question why they did it at all, and why they did it this way? The more I read, the more it makes me think that this is a case of the cobra swallowing the elephant: everything is digestible, but how long will it take; and while things are being digested, will the cobra survive, or starve on its own cleverness?

Read Answer Asked by Sylvia on October 16, 2015
Q: Hi Peter and team,

You mentioned in your answer to Gordon "Bloomberg has a note indicating the debt issue is having a tough selling process, but the financing is there from the backers..." I just want clarification, does this mean if Concordia cannot sell enough of it's debt issue, the "backers" (financial institutions?) WILL FUND the remaining money owing so the acquisition deal can go through?

It is reasonable to assume that if the deal does NOT proceed Concordia's balance sheet would look more favorable in the short term? That they would then have cash on hand to wait for another acquisition or pay down debt? It would seem to me that either scenario (although very volatile in the short term) would be OK for a patient investor in the long run.

You quoted $4.25 USD per share earnings for 2015 before the deal; does Concordia not give an earnings price range (i.e.: $3.75-$4.50 USD) or just a single target number?
I'm also assuming that if the acquisition added say only $0.80 USD per share and you picked up the stock at $35 CAD which looks possible, and it got back to trading at 10 times earning, that you might see a 30%+ return in the next year. Or even a multi-bagger in the next 2 years? Not suggesting or endorsing to load up of course!

I have more questions on Concordia but I will put them in a separate submission. Please and THANK YOU in advance for answering all these questions as accurately and detailed as possible! I think your responses will not only greatly help myself but all your members who have been asking so many questions on this deal. I think I can speak for everyone when I say that I find your services invaluable and irreplaceable!!!

Thanks again, Shane
Read Answer Asked by SHANE on October 16, 2015
Q: In Donville's most recent ROE reporter, he notes that he remains committed to Concordia. He says this:

"...at current valuations, I think the company is
worth a lot more than $50 a share. On our numbers, CXR trades on 4.8x 2016 Cash Earnings and 1.1x BVPS, while earning a 24% ROE."

Are these valuations in line with 5i's research, including the AmCo (Amphidarm) deal?
Read Answer Asked by CAMERON on October 15, 2015
Q: Had my eye on CXR for a while and thought I was cute by buying when they announced the placement pricing (at around $84 CAD) and we all know what has happened since. I caught a bit of your response yesterday to a caller on BNN regarding averaging down. My original purchase was a third to half position and makes up approx 1% of my portfolio. Thinking of adding to CXR here and bring my weighting up to 2% and see what happens. I may have also read that one reason for the share price decline was the possibility of having to do another share issue to pay down some debt? Is that a high probability? If so should I hold off buying the rest of my position?
Read Answer Asked by Richard on October 14, 2015
Q: For your readers:

https://www.bloomburton.com/research/CXRX20151012.pdf

Research report dated Oct. 12 from Bloom Burton (investment bank specializing in Healthcare in the US) regarding CXR. Please note that valuation is in USD in the report. A $78USD target price would imply ~$100CAD.

It appears there is a massive disconnect between CXR's current share price and its earning potential. The selling is become almost ridiculous at this point. Thoughts?
Read Answer Asked by Arneh on October 14, 2015
Q: Hello Peter,
Regards your response to a question today, swould the increase in credit spreads on its debt affect its ability to raise the $950 million, or make the terms for the debt unfavorable for the company thereby impacting the bottomline for the next 6to 8 quarters? Has the risk increased and the probability of a bounce reduced thereby making the current price appropriate rather than attractive?
Regards
Rajiv
Read Answer Asked by Rajiv on October 09, 2015
Q: Hi Peter, I have to confess that I became too greedy today and bought 5% of my portfolio at 45.20. In retrospect now I am thinking I took probably too much risk. I started buying CXR at CAD 86 and then bought some at CAD 65 and again some at CAD 50 and today CAD 45.20. Now it is 15% of my taxable account portfolio. My average cost is now at around CAD 55. Should I see some position?

I read TD Securities report and they have a Price Target at CAD $105. I read RBC report too and they have USD $86 target price(in their worst model it is USD $30). Also read Jason Donneville letter. Anyways reading at the reports and looking at your responses since 2014 for this company it seems to me it is significantly undervalued. As say 4.6X 2017 earnings(that is a PE a Bank deserves during a financial meltdown). So I am not sure what I am missing here. I know they have high debt load, but looking at their current debt to equity ratio(I got it from TD, can you please confirm from Bloomberg? Also I believe this is pre-amdipharm number), it is lower than Valeant. Anyways, considering healthcare earnings estimates are usually accurate(i meant not in vagary of economic downturn), what is the major problem here(that retail investor like me don't know)? Can you please jot down the risks? Also is there any possibility that they could not acquire amdipharm? Can you tell me from Bloomberg if any institutional selling recently? Can you elaborate on that? Also being a very popular stock why don't you guys please start coverage on it? Also what is your earnings target for this in 2017?
Read Answer Asked by Sridip on October 09, 2015
Q: Jason Donville just released his Q3 newsletter:

http://www.donvillekent.com/pdf/DKAM-Newsletter-October2015.pdf

It's always a great read, but I thought your readers may be interested in what he has to say regarding CXR. Please note this is the last paragraph of a lengthy discussion in the newsletter:

"So, where to from here? CXR has completed its equity issue and its underlying businesses are strong. But we also know the company is carrying more debt than we would like. Going forward, we think the stock is still quite undervalued but the company will need to address its debt issue somewhere down the road. This could mean that the company raises more equity or puts itself up for sale. Regardless, at current valuations, I think the company is worth a lot more than $50 a share. On our numbers, CXR trades on 4.8x 2016 Cash Earnings and 1.1x BVPS, while earning a 24% ROE."
Read Answer Asked by Arneh on October 08, 2015