Admedus – SIO to the rescue?

For Admedus shareholders, the past year has been an investor’s nightmare with AHZ becoming a negative “ten-bagger”!

Just nine months ago, on 27 April 2018 the share-price of AHZ reached a high of 40 cents per share, having rallied over the previous month from 30 cents. I was hopeful that soon I would be showing a profit on my average entry-price of 43 cents. It never happened. By the Australia Day holiday, the share price was just 4 cents.

What has gone wrong?

Admedus is a well run, emerging healthcare stock, but it has high capital needs to fund its global expansion. It has usually gone to shareholders about once a year to raise modest extra capital for its promising ADAPT tissue products, and to fund the immunotherapy research of Dr Ian Frazer, developer of Gardasil.

But in 2018 Admedus embarked on a more expansionist phase to ramp-up production of the ADAPT products.

  • During 2018 Hong Kong based Investment company Star Bright became the major institutional investor with a 19.9% holding in Admedus, providing a $12.7 million backing. Two Star Bright Nominees, Mrs Zhang and Dr Wu were appointed as non-executive directors of Admedus in December. China is seen as an important market for ADAPT products and joint projects are envisioned. A $5 million unsecured loan from Star Bright has now been repaid from the most recent capital raising.
  • In May/June 2018 a Share Purchase P:lan pitched at 30 cents a share raised A$2.76 million principally for the development of the TAVR aortic device for aortic stenosis.
  • The capital raising which has most hurt shareholders has been the most recent in December 2018. It was renounceable for a limited time, but was a very large issue of 5 shares for every 7 shares held, and pitched at 8 cents a share, with a free option attached, a massive discount to the then current price of 23-24 c/s. It succeeded in raising A$19 million.

The Sio Factor

To facilitate such a large raising, Admedus entered into an under-writing agreement on the 15th November 2018 (1), with the US Hedge Fund’s two entities Sio Partners, and Sio Capital Management. Sio is a boutique fund with assets of just US$ 71.3 million founded by Michael Castor, specializing in the Healthcare sector. It is a Long/Short Fund i.e. it reduces risk and increases potential profit by having a short-term component for Shorting stock(s), and the remainder Long Invested.

Substantial shareholder Notices show that Sio acquired 131,120,851 shares with 22.2% voting power on the 18th December 2018. (2)

On the 7th January 2019, 89,309,034 shares were sold at A$0.57 c/s, leaving it with 41,811,817 shares with 7.08% Voting power. (3)

Sio after taking up the shortfall of the Rights Issue has quickly reduced its risk by selling down its holding to 7% at A$0.57. It is now positioned to be able to accumulate a larger stake at the current price around 4 cents.

Market response to Quarterly Report Announcement

Admedus released its Quarterly Report for the period to 31 December 2018 on January 21, 2019. Although it reported an overall 46% growth in revenue from ADAPT product sales, it has been greeted with a fall in the share-price from 6 cents through support at 5 cents, to 4 cents/share

Daily chart Admedus, 12 months, Metastock.

The chart above shows a negative market response with the Ordinary Shares falling below support at about 5 cents, to 4 cents, whilst the attached company options continue to trade a little over 2 cents each. This is about a 25% discount to the 5 for 7 rights issue price which raised $A 19 million for the company.

The hope is that Sio Partners and Sio Capital Markets will now find it most profitable to be Long on Admedus shares.

Disclaimer

I am not a qualified financial adviser. Readers should not rely on the accuracy of this post, do their own research, and seek independent stock-broking advice before making their investment decisions.



Categories: Company review

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