Brief Growth Ideas: Phreesia IPO: Market Growth Prospects Look Attractive Not Phreesia and more

In this briefing:

  1. Phreesia IPO: Market Growth Prospects Look Attractive Not Phreesia
  2. Sansan’s First Post IPO Results: Topline Grows, Losses Shrink and Expects Profit in FY05/2020E
  3. Shanghai/Shenzhen Connect Ideas: Duty-Free Shops, Yanghe, Wuliangye, Meinian (2019-07-12)
  4. Wanda Sports (万达体育) IPO Review – Shareholders Selling in the IPO

1. Phreesia IPO: Market Growth Prospects Look Attractive Not Phreesia

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Established fourteen years ago, Phreesia Inc (PHR US) is a leading solutions provider that caters to the health market in the US. The IPO price range is between USD15 and USD17 per share, while the IPO deal size is expected to be around USD111.2m, assuming a price of USD16 (the mid-point of the proposed offer price range). We have analysed Phreesia’s background and its business model, comparing it with similar platforms. We have also analysed the financial performance and position of the company and its valuation based on the offer price range. Based on our analysis, we think the company could see strong short-to-medium-term growth, although long term growth appears questionable. Our key points are:

  • Phreesia has been in the market for a relatively long time but still looks immature as a business. The company, which operates a subscription-based model, does not seem to offer a unique value proposition to its clients. The Phreesia Platform lags in terms of features offered compared to recently emerged platforms.
  • The current growth momentum in Average Revenue per Provider (ARPP) is likely to continue over the short term. However, long term growth requires Phreesia to develop the features of its platform to outperform competitors, and in turn, secure a growing number of provider clients. This is crucial in sustaining its ARPP growth.
  • We feel that payment processing revenue is a long-term growth driver.
  • Phreesia is still a loss-making firm and does not seem likely to turn profitable over the short term.
  • The company is likely to trade at an FY1 EV/sales of 3.8x looking quite expensive when compared to certain other established peers.
Deal Specifics of Phreesia’s Global Offering

Details:

Price Determination Date

July 17th, 2019

Expected IPO price per share:  

USD 15 and USD 17

Number of Shares for IPO:

7,812,500 shares of common stock

Underwriters: 

J.P. Morgan Securities LLC, Wells Fargo Securities, LLC and William Blair & Company, L.L.C.

IPO base deal size: 

Approx.USD111.2m (based on Median)

Use of Proceeds

* USD18.1m (16%)- to pay a cash dividend to the holders of 22,871,507 shares of our Senior Convertible preferred stock;

* USD17.7m (16%)- repay all of our revolving line of credit with Silicon Valley Bank;

* Other particular uses not detailed with certainty. Hopes to invest some of the net proceeds of this offering in interest-bearing obligations, investment-grade instruments, certificates of deposit or direct or guaranteed obligations of the U.S. government

Source: Company Disclosures

We go through the details below.

2. Sansan’s First Post IPO Results: Topline Grows, Losses Shrink and Expects Profit in FY05/2020E

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Sansan Inc. (4443 JP), the business card digitisation company reported its full-year FY05/2019 results on Friday (12th July 2019). The company was listed on the TSE Mothers Market on 19th June 2019 and these are the first results post the company’s IPO debut.

The full-year and the fourth quarter results for FY05/2019 saw strong growth in revenue while the company’s operating losses have declined significantly. For FY05/2020E, Sansan expects its topline growth to continue while it expects to report its first Operating Profits during the year as well as net profits.

Since the company shares started trading last month, the shares have gained nearly 30% to JPY5,810 per share at the end of Friday’s trade. However, based on our estimates, we believe the company shares are currently undervalued and deserve a premium to their current trading multiple. Furthermore, the company being able to generate positive returns in the near future should further boost share prices.

We discuss the details below.

3. Shanghai/Shenzhen Connect Ideas: Duty-Free Shops, Yanghe, Wuliangye, Meinian (2019-07-12)

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In our weekly Shanghai/Shenzhen Connect Ideas series, we aim to help our investors understand the flow of northbound trades via the Shanghai and Shenzhen Connect, as analyzed by our proprietary data engine and highlight interesting trade ideas. 

We split the stocks eligible for the Shanghai/Shenzhen Connect trade into two groups: stocks with a market capitalization above USD 5 billion, as well as between USD 1 billion and USD 5 billion.

In this insight, we would like to highlight strong inflows into China Int’L Travel Service (601888 CH), Jiangsu Yanghe Brewery A (002304 CH), and Meinian Onehealth Healthcare H (002044 CH). We will also highlight outflows from Hangzhou Hikvision (002415 CH), and Luxshare Precision Industry (002475 CH).

4. Wanda Sports (万达体育) IPO Review – Shareholders Selling in the IPO

Assumptions

Wanda Sports Group (WSG US) is looking to raise up to US$500m in its US IPO. We have previously covered the company in:

In this insight, we will go through our assumptions, valuation forecast, run the deal through our ECM framework.

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