$INDV.L – the elevator pitch

The idea is: you’re buying at a discount to a comparable, with favourable optionality from the pipeline. Indivior’s big scare card is declining revenues due to competition from generics. It’s current market cap to revenues was around 1.3. Consider a comparable like AZN that had patent cliff concerns. Its ratio was around 3.7 (GSK is 2.5). So, on a RELATIVE valuation, INDV looks cheap. Plus, INDV has additional “outs” like a drug pipeline (two in late-stage development), and some ways it can mitigate its revenue declines. Some further factors to consider: * RB described INDV as a headache, and wanted shot of it. They tried to find a trade buyer, but failed. There solution was to spin it off. * Spin-offs statistically outperform the market. Now, I know that doesn’t sound like much of an idea. There is risk in it, to be sure, so I wouldn’t say it was a good idea to bet the farm. But it’s a company that no-one is interested in, and even experienced UK investors haven’t even looked at it. However, it’s not that unusual to find things not to like in spin-offs. One gotcha to look out for: there is a post-balance sheet event where INDV will pay a $500m divvie to former parent. INDV recently had a recap to create distributable reserves to pay for it. BTW, Google Finance looks like it is report duff figures. The number of shares 718.58m is correct, but at a share price of 172p, it’s market cap is not £2483 as it shows. I’m not sure how they could mess up such basic arithmetic.

Update 26-Jan-2016: The Motley Fool wrote an article on Individior at the end of the year, with the headline “Should You Buy, Sell, Or Hold Reckitt Benckiser Group PLc’s Spinoff, Indvior PLC?” Typically for TMF, the section “Buy, sell or hold?”  didn’t actually give you a recommendation. Anyway, you can read a little more detail about Indivior. Apparently their “top analysts” have put together a report. To qutoe the wit of Moses Hadas: “Thank you for sending me a copy of your book. I’ll waste no time reading it.”

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About mcturra2000

Computer programmer living in Scotland.
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