European Event-Driven Analyst

Jesus Rodriguez Aguilar

Event-Driven

<p>On 26 May, British pharmaceutical group <a href="https://www.smartkarma.com/entities/vectura-group-plc" target="_blank" data-smartkarma-citation="entities:22201:1" rel="noopener">Vectura (VEC LN)</a> Group plc, which specializes in inhaled medicines, has agreed to be acquired by Carlyle by means of a scheme of arrangement. Vectura shareholders will receive <strong>136p in cash and a 19p interim cash dividend (record date 28 May)</strong> for each share, a total of 155p.</p>
<ul>
<li>
<p>For an implied equity value of £833.66 mn, and an implied EV of £759.3 mn.</p>
</li>
<li>
<p>This represents 4.4x EV/Fwd revenue, 14.7x EV/Fwd EBITDA and 27.4x Fwd P/E.</p>
</li>
<li>The dividend is funded by the after tax GSK litigation proceeds received.</li>
</ul>
<p>Vectura is in the midst of transitioning to CMDO. While the firm seems good value, there is some execution risk on the transition to CDMO.</p>
<p>My <strong>WACC </strong>estimate for Vectura is <strong>4.2%</strong> vs. a <strong>ROIC</strong> (calculated at YE 2020) <strong>of 1.8%</strong>. This means that the company earns returns that do not match up to its cost of capital. It <strong>destroys value as it grows</strong>. Here is where Carlyle will have to work its magic.</p>
<p>My TP is 145p (comps based) vs. the median Capital IQ consensus TP of 135p. The offer represents a <strong>fair premium</strong> to the prior day closing price and and I see a counterbid as unlikely. I would expect investors to support the offer, but market reaction implies that the offer will probably have to be sweetened.</p>
<p>The share price of Vecture closed at 162.2p, a 33% increase vs. the prior trading session, with a volume of c. £36 mn. <strong>Gross spread is (4.6%) to the total consideration</strong> and 1.1% to my TP. Recommendation is <strong>long VEC LN, TP 164</strong> (downside risk seems limited).</p>
<div>
<p></p>
<p></p>
</div>
<div>
<div>
<div id="relatedNews5">
<div data-bind="compose: { model: 'views/news/article/relatedContent/index', activationData: { keyDoc: keyDoc, keyForeignLanguage: keyForeignLanguage, articleTypeName: articleTypeName, articleTypeDescription: articleTypeDescription, showAllRelatedSections: showAllRelatedSections, relatedContentDisplayResult: relatedContentDisplayResult, djArticleChainID: djArticleChainID, userCulture: userCulture, userPreferredExchange: userPreferredExchange, userMSTimeZone: userMSTimeZone } }">
<div data-view="views/news/article/relatedContent/index" data-active-view="true">
<div data-bind="lazyRender: true">
<div data-bind="visible: $root.showRelatedSections">
<div>
<div></div>
</div>
</div>
</div>
</div>
</div>
</div>
</div>
</div>

On 26 May, British pharmaceutical group Vectura (VEC LN) Group plc, which specializes in inhaled medicines, has agreed to be acquired by Carlyle by means of a scheme of arrangement. Vectura shareholders will receive 136p in cash and a 19p interim cash dividend (record date 28 May) for each share, a total of 155p.


For an implied equity value of £833.66 mn, and an implied EV of £759.3 mn.


This represents 4.4x EV/Fwd revenue, 14.7x EV/Fwd EBITDA and 27.4x Fwd P/E.

The dividend is funded by the after tax GSK litigation proceeds received.

Vectura is in the midst of transitioning to CMDO. While the firm seems good value, there is some execution risk on the transition to CDMO.
My WACC estimate for Vectura is 4.2% vs. a ROIC (calculated at YE 2020) of 1.8%. This means that the company earns returns that do not match up to its cost of capital. It destroys value as it grows. Here is where Carlyle will have to work its magic.
My TP is 145p (comps based) vs. the median Capital IQ consensus TP of 135p. The offer represents a fair premium to the prior day closing price and and I see a counterbid as unlikely. I would expect investors to support the offer, but market reaction implies that the offer will probably have to be sweetened.
The share price of Vecture closed at 162.2p, a 33% increase vs. the prior trading session, with a volume of c. £36 mn. Gross spread is (4.6%) to the total consideration and 1.1% to my TP. Recommendation is long VEC LN, TP 164 (downside risk seems limited).






















Carlyle/Vectura Group: Expectations of a Sweetened Bid

Leading International Investment Research, Edison Investment Research

Edison Investment Research

Leading International Investment Research

Edison is an investment research and advisory company, with offices in North America, Europe, the Middle East and AsiaPac. The heart of Edison is our world renowned equity research platform and deep multi-sector expertise. At Edison Investment Research, our research is widely read by international investors, advisors and stakeholders. Edison Advisors leverages our core research platform to provide differentiated services including investor relations and strategic consulting.

Equity Bottom-Up

<p>Building on its positive adjusted H118 EBITDA and its partnerships, Vectura has announced three recent additional developments. Partner Mundipharma received a positive EU opinion for flutiform (46% of H118 revenues) for the treatment of asthma in children, expanding its market from adults and adolescents. The agreement with Hikma to develop generic versions of GSK’s Ellipta brings upfront and milestone payments and ensures Vectura’s participation in the global respiratory disease market irrespective of whether generic or branded products predominate in each market. The failure of VR475 in severe uncontrolled asthma reflects more the difficulty for a non-biologic product to treat these patients.</p>

Building on its positive adjusted H118 EBITDA and its partnerships, Vectura has announced three recent additional developments. Partner Mundipharma received a positive EU opinion for flutiform (46% of H118 revenues) for the treatment of asthma in children, expanding its market from adults and adolescents. The agreement with Hikma to develop generic versions of GSK’s Ellipta brings upfront and milestone payments and ensures Vectura’s participation in the global respiratory disease market irrespective of whether generic or branded products predominate in each market. The failure of VR475 in severe uncontrolled asthma reflects more the difficulty for a non-biologic product to treat these patients.

United Kingdom

Vectura Group PLC develops inhaled therapies for the treatment of respiratory diseases.  The Company's main products are used to treat asthma and chronic obstructive pulmonary disease.  Vectura also develops products for lung pathologies and non-respiratory diseases.

Price Gauge
52-week Range	0.00 - 0.00
Market Cap (USDm)	0.00
P/E	0.00
Dividend (Yield)	0.00

Vectura (VEC LN)

Carlyle/Vectura Group: Expectations of a Sweetened Bid

Vectura destroyed value as it grew. Offer is a fair premium to median Cap IQ cons. TP 135p. The offer will probably be sweetened. Gross spread is...

Jesus Rodriguez Aguilar

Vectura - Not pausing for breath

Building on its positive adjusted H118 EBITDA and its partnerships, Vectura has announced three recent additional developments. Partner Mundipharma...

Edison Investment Research

Price Gauge

52-week Range

Market Cap (USDm)

P/E

Dividend (Yield)