April 24, 2010, 10:55 am

4/19 Week in Review

IPO Week in Review.

The week of 4/19, with eight deals pricings, was the busiest ipo week since the fall of 2007. Was a very average group overall and the pricing and initial aftermarket performance reinforced that case.

Ipo fallacy: 'It is all about the initial pop and the only way to make money is getting the deal and flipping on open'. Wrong, wrong wrong. Yes that case a decade ago, when the market was frothy and an ipo pricing at $13 routinely would open at $55. Quick fact: The initial ipo 'pop' from pricing since 1/1/09: 5 1/2%. The average gain(based on Friday's close) for ipos since 1/1/09: 13%. Most of the gains have been made in the aftermarket as was the case during the last bull run of 2003-2006. The first day is really not all that important, the key to making money over time with ipos is to find a deal that is overlooked and has the potential to appreciate over time.

A quick look at this week's deals with my thoughts.

EXL - Excel Trust: Priced 15 million shares at $14. Opened pretty much broken and closed down 5% at $13.30. EXL is a REIT focused on acquiring and owning retail community centers(strip malls essentially). Plan is to leverage up on mortgage debt to increase return to shareholders. Management has a solid track record, key here is whether one believes commercial real estate has bottomed. Minimal operations to date, this is one to look at down the line after a year or so to see how things are progressing. No interest in this deal.

ALIM - Alimera Sciences: Priced 6.6 million shares at $11. Closed Friday at $11.01, flat from pricing. ALIM is a development stage pharmaceutical focused on retina disease. Expected to have first candidate commercialized n early 2011. Question marks here include acceptance of their product as well as size of end market here. No interest in this deal either.

CDXS - Codexis: Priced 6 million shares at $13. Closed Friday at 14.04 for an 8% gain from pricing. Biocatalysts for biofuel and pharma. Large collaboration with Shell to develop biofuels. Not close to commercialization in biofuel segment, working initially as a 'green' and 'clean' fuel ipo. Highly speculative, will either be a home run or a below $5 stock in 2-3 years. I'd put odds on the latter, still too early to jump in here. No interest, although if CDXS/Shell are successful this has 'home run' potential.

DVOX - Dynavox: Priced 9.4 million shares at $15. Closed Friday at $15.18 a 1.2% increase over pricing. DVOX is the dominant market leader in assisted speech technology and devices. Makes products that speaks for those that cannot. Profitable since at least 2005, strong gross(75%) and operating margins(25%), should book a 35%+ revenue gain in FY '10 and earn $.63. I like this one a lot and believe it got lost in the shuffle of 'average' deals this week. The only ipo of the week I am currently long, this one has the potential to be a long term winner if they continue to execute. I see DVOX and FNGN(Financial Engines) as the two top deals of 2010 as far as appreciation potential from pricing 1-2 years out.

DHRM - Dehaier Medical Systems: 1.5 million shares priced at $8. This was an 'as offered' deal that was nearly impossible to get on ipo. I know of one person that was able to get 1,000 shares and that is it. Opened $10.25 and closed Friday at $12.49 for a massive 56% gain from pricing. China Medical equipment distributor. Is it really this good? No, not at all. This was a case of a very small float controlled by the underwriter in a deal designed to make the underwriter and clients a quick buck. Not a bad company, I liked this one a bit at $8 actually although there was not chance to get it there. This is one of those a year from now will most likely be back solidly into single digits and we will take a look at it at that point.

GGS - Global Geophyscial: Priced 7.5 million shares at $12. Closed Friday at $12. Priced well below range, probably found a level it can sustain here at $12. Seismic operations for the oil and gas industry. Very high capital intensive business has meant GGS has been able to put little on the bottom line. Had a massive one off deal in 2009, meaning 2010 will see a decline in revenues. There is value in here somewhere, but not interested currently.

MITL - Mitel Networks: Priced 10.5 million shares at $14. Closed Friday at $12.07 a 14% drop from pricing. Original range here was $18-$20, this was mispriced the whole way. IP based communications for small and medium business. Nothing at all here to be interested in, I panned this deal pretty vigorously at original $18-$20 range and it could even hold a slashed $14 pricing. Not a bad company, in a business with hefty competition and no real technology advantage. There would be value here $10 or below longer term, but currently no interest here.

SPSC - SPS Commerce: Priced 4.1 million shares at $12. Closed Friday at $13.91, a 16% gain. Micro cap on demand supply chain management software company. Nice little micro-cap in a spot(retail) that has been working in the market. Looks pretty fully valued here, would be interested on a pull back to pricing levels.

Pre-ipo I recommended in range DVOX and DHRM, with a 'neutral' on SPSC and a 'pass' on all the others. At current prices, DVOX is the one that appears to look most attractive going out the next year or so. I would look at SPSC and DHRM on a bit of a pullback. Yes a very busy week in ipoland, unfortunately most of the deals were just not that enticing.

April 22, 2010, 9:44 am

DVOX - Dynavox

DVOX - Dynavox

DVOX - Dynavox plans on offering 9.375 million shares at a range of $15-$17. Assuming over-allotments, the deal size will be 10.8 million shares. Piper Jaffray and Jefferies are leading the deal, William Blair and Wells Fargo are co-managing. Post-ipo DVOX will have 31 million shares outstanding for a market cap of $496 million on a pricing of $16. 1/3 of the proceeds will go to debt repayment, the remainder will go to insiders.

Vestar will own 35% of DVOX post-ipo and will control voting interests via a separate share class.

From the prospectus:

'We develop and market industry-leading software, devices and content to assist people in overcoming their speech, language or learning disabilities. Our proprietary software is the result of decades of research and development and our trademark- and copyright-protected symbol sets are more widely used than any other in our industry.'

DVOX is a leader in two areas for assistive technologies: speech generating technologies and special education software.

DVOX is the largest provider of speech generating technology. Users communicate through synthesized or digitized recorded speech. Users are those who are unable to speak, such as adults with amyotrophic lateral sclerosis, or ALS, often referred to as Lou Gehrig's disease, strokes or traumatic brain injuries and children with cerebral palsy, autism or other disorders. Devices can be controlled/used via touch or even via tongue, head or eye movements. 82% of revenues are derived from DVOX's speech generating products.

Special Education software - 18% of revenues. Used by children with cognitive challenges, such as those caused by autism, Down syndrome or brain injury; physical challenges, such as those caused by cerebral palsy or other neuromuscular disorders; as well as by children with learning disabilities, such as severe dyslexia. DVOX's proprietary symbol sets are the most widely used for creating symbol-based activities and materials in the industry. Funding generally comes from federal sources.

I like this statement in the S-1: 'We believe that our speech generating technologies can transform the lives of those who have significant speech, language, physical or learning challenges by enabling their communication.'

Two most recent products are the EyeMax eye-tracking accessory and the highly portable Xpress speech generating device.

Speech generating products are sold via a direct sales force focused on speech language pathologists. Special education software is sold via internet and direct mail.

Products are sold in the US, Canada and Great Britain.


Speech Generating - 20 million adults and children in the US suffer from conditions that may lead to speech impairment. DVOX believes the annual new market for speech products is $1.8 billion in their geographic market. DVOX does believe this potential end market is currently under penetrated. Growth driver include a growing awareness among speech pathologists and the underserved population. DVOX believes speech generating products are only now achieving mass awareness. A big reason for this are technological advances making the products far more accurate and user friendly.

***I have a feeling that speech generating products are only now beginning to reach 'tipping point' stage. With the aging US population coupled with technological advances in the products themselves, this is a fantastic growth spot over the next 10+ years...and DVOX is far and away the market leader. Assuming the financials look at least okay, this is a very unique, interesting and strong ipo.

Special Education Software - In the US 6 million students are deemed to require special education with a market opportunity of $1 billion+ annually. DVOX believes higher education standards coupled with increased special education funding are the growth drivers for their Special Ed software.

Risks - A large chunk of DVOX's revenues are derived from the public school system as well as Medicaid and Medicare. With budget shortfalls, each of the preceding is finding itself in 'cutback' mode. This could stall growth somewhat, particularly in DVOX's special education segment. I doubt very much that funding cutbacks are going to effect the speech generating segment however as there are few voice communication alternatives out there currently for those without speech.

Competition: From the S-1: 'Within our particular areas of speech generating technology and interactive software for students with special educational needs, we believe we are the largest player and have no dominant competitors.' Rarely do you see in a prospectus a statement this strong when describing the competition.


$30 million in net debt post-ipo. Expect DVOX to pay this down via cash flows going forward. Debt not enough to impede operations.

Fiscal year ends 6/30 annually. FY '10 ends 6/30/10.

Revenues have increased annually for at least five years in a row. DVOX has been profitable since at least FY '05.

Seasonality - Revenues are stronger in the back half of the fiscal year, with the 4th quarter(6/30) being the strongest. In FY '09 33% of revenues were derived in the 4th quarter of the fiscal year.

FY '09(ended 6/30/09) - Revenues of $91 million, a 12% increase over FY '08. Gross margins were strong at 73%. Operating expense ratio of 52%, operating margins of 21%. Solid margins here. Plugging in debt servicing and full taxes, net margins were 11 1/2%. EPS of $0.34.

FY '10 - Strong start to the fiscal year for DVOX through the first 2 quarters of the fiscal year. Keep in mind that DVOX's strongest quarters are to come and DVOX should post a strong number in the 6/30/10 quarter.

***Revenues should grow a strong 37% to $125 million. As I noted above, DVOX's speech generating products appear to be hitting critical mass as revenues in that spot are accelerating strongly here in FY '10.

Gross margins are improving as are operating expense ration, although the latter only slightly. Gross margins should be 75%. Operating expense ratio of 51%, putting operating margins at a quite healty 24%.

Debt servicing should eat up 9% of revenue, well below my 20% threshold. Again, I would expect this debt to be erased altogether sometime in FY '11.

Net after tax/debt margins of 15%. Earnings per share of $0.63. On a pricing of $16, DVOX would trade 25 X's FY '10 earnings.

FY '11 - Really is just a guess here until we see the 6/30 quarter, which will set the tone for FY '11. Let us take a guess though. I do not expect another 30%+ quarter as some of that strength is due to easy recession year comparisons in FY '09. Note though that even in a tough economic climate, DVOX grew FY '09 revenues 11%. I would peg FY '11 growth around 20%, a conservative number. Gross margins have gone about as far as they can I think at 75%. Operating margins should improve slightly as should net margins. On 16 1/2% net margins and 20% revenues growth, DVOX would earn $0.80 per share. On a pricing of $16, DVOX would trade 20 X's FY '11 earnings.

Conclusion - Market leader in what should be a nice growth area over the next decade. Strong recommend in range here, I like this ipo quite a bit. DVOX looks poised to have a great future, very reasonable market cap in range when we take into account the potential here going forward. This one has the potential and the look of a long term winner

April 12, 2010, 7:05 pm

CELM - Anatomy of a trade

I've not ever done this before. However it seems that most 'ipo experts' out there do nothing but plug themselves even though most do not even trade or own ipos. At tradingipos.com we put our money where our analysis is. Here is a little self-promotion:

We liked CELM on ipo quite a bit, especially with the slashed $4.50 pricing. We owned a large position in the stock, which we sold the last of today at $7.70. We post real-time trades on the forum in our subscribers section, and have been for five years.

We consistently make money at tradingipos and have been fortunate to make a nice living for a decade now exclusively trading these ipos. As important, we help subscribers make money.

Before posting the pre-ipo piece on CELM, here are the timestamps/comments on CELM from the forum on our subscribers section. All, but the last are from me"

Posted: 28 Jan 2010 11:40 am Post subject:

CELM..just looked at prospectus, appears same number of shares outstanding to with new range, so this is a nice reduction in market cap and valuation. at $4.50, it is priced to work.

Posted: 29 Jan 2010 08:01 am Post subject:

celm added 4.64 on open..no stop.


Posted: 03 Mar 2010 08:58 am Post subject:

celm, yep we all here know this is going to run, most likely to at least 7ish...just a matter of time after amcf popped. haven't been this sure of something in a long time


Posted: 09 Mar 2010 07:24 am Post subject:

CELM, yes $8 target. As I have been saying, this thing should hit at least $7 and that is the area I am looking to take some off.


Posted: 16 Mar 2010 07:36 am Post subject:

celm, am already loaded in the name..my avg right around 4.85-4.90.


Posted: 12 Apr 2010 12:57 pm Post subject:

celm, playing out perfectly here although it is setting up for blow-off gap up in morning...I am out here of all 7.7's for final 1/3. nearly 60% gain on that last 1/3


and this post today from a subscriber:

Posted: 12 Apr 2010 07:03 am Post subject: CELM

just wanted to thank you guys for your input on CELM and Bill for your analysis. Even though I sold a bit early last week I still managed to make my year with it by taking oversized positions on the 2 runs from sub $5 to low to mid $6.


Following is the analysis piece I did on CELM for subscribers back in January pre-ipo. These pieces are the basis for my trades...trades/positions I've posted in the subscriber section of tradingipos.com for 5 years now.

Okay, the self-promotion is over...Anyone publishing the CELM analysis piece below, please do so with the above. The piece is now a bit dated as CELM has moved so much and it is now intended as a companion piece to the live trading comments posted above. Thanks.

CELM - China Electric Motor

CELM - China Electric Motor plans on offering 6.7 million shares at a range of $5.50-$6.50. Insiders will be selling 2.5 million shares in the deal. If over-allotments are exercised, the deal size will be 7.5 million shares. Note that in addition to the shares being offered, CELM is giving the underwriters warrants for an additional 425k of stock. Roth and Westpark are leading the deal. Post-ipo, CELM will have 20 million shares outstanding for a market cap of $120 million on a pricing of $6.

Ipo proceeds will be used to increase manufacturing capacity, to purchase more industrial space, to modernize factory equipment and for other general corporate purposes.

To Chau Sum will own 50% of CELM post-ipo. He is not listed as a company officer, however CELM's CFO and Chairman are also involved in To Chau Sum's investment and operation arms. While not operating CELM day to day, he appears to be the 'money guy' behind the creation of CELM and fully in control of management. CELM was once a shell symbol and there are a myriad of transactions with subsidiaries of China Electric, To Chau Sum's investment vehicles and WestPark Capital.

Westpark Capital founder Richard Rappaport will own 6% of CELM post-ipo. Mr. Rappaport also owns a similar % stake in recent ipo ZSTN and has already filed to sell that stake. Expect similar here with an insider secondary coming a few months after ipo.

**Private Placement - CELM did a private placement 10/6/09 at $2.08 per share. The ipo price mid-range is nearly triple this private placement price just 3 1/2 months later.

From the prospectus:

'We engage in the design, production, marketing and sale of micro-motor products. Our products, which are incorporated into consumer electronics, automobiles, power tools, toys and household appliances, are sold under our "Sunna" brand name.'

Micro-motors for consumer products. Produces both AC and DC motors, CELM notes that micro-motors are 'simple to control, easy to operate and are generally very reliable.'

Motors for home appliances account for approximately 65% of revenues, motors for automobiles 22%.

Automobile uses for micro-motors include automated car seats, windows, trunks, door locks, mirrors, sliding doors and roofs.

Home appliance uses include including hairdryers, air conditioners, paper shredders, soy milk makers, juice makers, electric fans, heaters and massagers.

As micro-motors are used in consumer appliances and newer model autos, CELM is a direct play on 1) growing middle class in China; and 2) the continued shift to China for the manufacture of small electronic appliances and micro-motor products. The latter being driven by lower cost manufacturing base in China as well as a growing end market in China and surrounding countries.

Motors sold directly to OEM's and distributors. CELM produces 28 different series of motors with 1,200 different product specs. Majority of CELM's revenues are derived from custom products as only 6.5% of sales are for stock 'off the shelves' motors.

Top seven customers account for over 50% of revenues.


With any technology manufacturer, gross margins indicate where on the 'tech scale' the company sits. The higher the margins, the 'higher tech' the company which generally leads to a higher than average multiple. Conversely lower margins indicate a 'commoditized' type tech sector which generally lead to lower multiples. CELM resides in the lower margin area of the tech ladder. Through the first nine months of 2009, CELM's gross margins were 28%.

Approximately $1 per share net cash post-ipo.

CELM has no real accounts receivables issues. They've had no receivables on the books for over 30 days for the past few years.

2009 - Through the first nine months, total revenues look to be on track for $88 million, a 65% increase over 2008. Gross margins as noted of 28%. Operating expense ratio of 10%, putting operating margins at 18%. As is becoming the norm in China, tax rate is right around 25%, putting net margins at 14%. Earnings per share should be $0.62. On a pricing of $6, CELM would trade 9 1/2 X's 2009 earnings.

2010 - CELM's growth in 2009 was a little deceiving as their quarter to quarter revenues were flat through the first 3 quarters of '09 at $19 million, $22 million and $22 million. CELM had a huge revenues jump the first quarter of 2009 and maintained that new level throughout the year. Actually this is similar to their previous two years as it appears their new contracts kick in with the new year. We'll have a much clearer picture of CELM's 2010 revenue story after the first quarter. I would be surprised if CELM is able to grow revenues in 2010 much more than 30%. I am far more comfortable plugging in 25% revenue growth here. The good news is that CELM's gross margins do appear to be improving a bit due to product mix. At a $110 million run rate in 2010, with 30% gross margins CELM should earn $0.90. This may prove to be a bit conservative, but with a micro cap I'd rather err on the conservative side. On a pricing of $6, CELM would trade 6 1/2 X's 2010 earnings.

A quick look here at CELM and HRBN. HRBN produces all sorts of motors, while CELM focuses exclusively on micro-motors. HRBN - $569 million market cap. Currently trading 9 X's 2010 earnings estimates with a projected 90% revenue growth rate. Note that a large chunk of HRBN's 2010 revenue growth is expected to be driven by a significant 2009 acquisition. CELM - $120 million on a pricing of $6. Would be trading 6 X's conservative 2010 estimates with a 25% revenue growth rate. We have a growth and margin comparable here in recent ipo, ZSTN - both ZSTN and CELM are lower margin and similar 2010 growth rates; however, very different tech sector. I do believe CELM is much more viable growth story longer term than ZSTN. CELM has better gross margins than ZSTN, actually much better at a 2009 28% compared to ZSTN's 16%. In addition, CELM appears to be slightly increasing gross margins, while ZSTN's are faltering. Each expected to grow 25% in 2010. ZSTN currently trades 8 1./2 X's 2010 estimates, so simply on that basis it appears there could be appreciation here for CELM in range.

Conclusion - Somewhat commoditized Chinese tech microcap coming at an attractive multiple. CELM has shown strong growth in a difficult 2009. CELM has been operating cash flow positive since 2006 and has improved those cash flows each of the past three years. That is a key here as we have seen numerous China microcap ipos that have been GAAP positive but operating cash flow negative. CELM has not only been operating cash flow positive for 4 years, they've increased those cash flows annually. That is a nice positive in an obscure microcap. The lower gross margins here means we should not get too excited, however in range this deal looks priced to work. Below range it is a no-brainer.

April 7, 2010, 10:47 am

HTHT - China Lodging Group

tradingipos.com piece done for subscribers pre-ipo.

HTHT - China Lodging Group

HTHT - China Lodging Group plans on offering 9 million ADS at a range of $10.25-$12.25. Assuming over-allotments are exercised, the deal size will be 10.35 million shares. Goldman Sachs and Morgan Stanley are leading the deal, Oppenheimer co-managing. Post-ipo HTHT will have 60.25 million ADS equivalent shares outstanding for a market cap of $678 million on a pricing of $11.25. Ipo proceeds will be used to fund expansion.

*** Founder, Executive Chairman of the Board of Directors Qi Ji will own 46% of HTHT post-ipo. Qi Ji also co-founded HMIN and CTRP and served as CEO of each. Qi Ji currently site on the Board of Directors of CTRP. CTRP and HMIN are two of the most successful China ipos of the past decade. In addition CTRP will be purchasing an 8% stake in HTHT on ipo at ipo pricing.

From the prospectus:

'We operate a leading economy hotel chain in China.'

HTHT commenced operations in 2005.

In '08 and '09 HTHT had the highest revenues generated per available room, or RevPAR, and the highest occupancy rate in China.

HTHT operates under the HanTing Express Hotel, HanTing Seasons Hotel and HanTing Hi Inn.

In 2009 approximately 68% of room nights were sold to members of HTHT's HanTing Club loyalty program.

HTHT utilizes a lease and operate model, directly operating the majority of their branded hotels. HTHT does franchise and manage hotels as well. As of 12/3109, HTHT had 173 leased-and-operated hotels and 63 franchised-and-managed hotels. In addition, as of the same date, HTHT had 21 leased-and-operated hotels and 123 franchised-and-managed hotels under development. HTHT currently operates in 39 cities with 28,360 total rooms.

2009 occupancy rate was strong at 94%. Average daily room rate was approximately $25 US with RevPAR at a shade over $23 per day.

Sector - We've seen two ipos this decade in this sector, HMIN and SVN. The lodging industry in China consists of upscale luxury hotels such as four and five star hotels and other accommodations such as one, two and three star hotels and guest houses. The industry grew from approximately 237,800 hotels in 2003 to approximately 315,900 hotels in 2008, and 20.1 million rooms in 2003 to 27.3 million rooms in 2008.

Seasonality - 1'st quarter annually tends to be HTHT's lightest.

HTHT plans to add approximately 90 hotels in 2010, the majority of which will be franchised as opposed to leased and managed. This is key as HTHT's franchised hotels bring in less revenue per hotel than HTHT's leased and managed hotels.


$2.25 in net cash post-ipo.

HTHT moved into operational profitability in 2009.

97% of 2009 revenues were derived from leased and operated hotels.

2009 - $185 in revenues, a 65% increase over 2008. Growth was driven by an increase in hotels and rooms as RevPAR and occupancy remained stable. Gross margins were 21%. Operating margins 6%. HTHT's tax rate is approximately 25%, putting net margins at approximately 4%. Earnings per share were $0.13. On a pricing of $11.25, HTHT would trade 86 X's 2009 earnings.

2010 - HTHT outgrew both SVN/HMIN in 2009 and that should continue in 2010 with the aggressive growth plan. Revenues however will not come close to the 65% increase in 2009 though due to the mix of new hotels leaning towards franchised as well as the flat revenues the back half of 2009. I would plug in 30% revenue growth in 2011, for a total of $240 million. Gross margins should improve to 25%, operating margins 11%. Net margins after tax of 8.25%. Earnings per share of $0.33. On a pricing of $11.25, HTHT would trade 34 X's 2010 earnings.

Quick comparison with SVN and HMIN:

SVN - $320 million market cap. Trading 1 1/2 X's '10 revenues and 33 X's '10 estimates with a 28% revenue growth rate.

HMIN - $1.33 billion market cap. Trading 3 X's '10 revenues and trading 38 X's '10 estimates with a 23% '10 revenue growth rate.

HTHT - $678 million market cap on $11.25. Would trade 2.8 X's '10 revenues and 34 X's '10 earnings with a 30% revenue growth rate in '10.

Conclusion - All three of these(HMIN/HTHT/SVN) are sacrificing shorter term bottom line growth in a race to grow locations and rooms. The problem with this strategy is any appreciation for HTHT over pricing range makes them look awfully pricey when put beside nearly every other China stock across all sectors. That is a perceived valuation issue for this group currently as top line growth should be strong, but bottom line results continue to make the sector look pricey. This deal is a recommend in range for one big reason: HTHT's founder & CEO has also co-founded and was CEO of two very successful Chinese ipos this decade CTRP and HMIN. Factor in that CTRP is purchasing a nice chunk of HTHT on ipo pricing and this is a deal that should work shorter term in range. Mid-term, all depends on what multiple the market wants to give this sector. This is a very competitive group and pricing power(or lack of) will come into play as the economy hotel market becomes better covered and saturated.

Recommend shorter term in range.

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