Quick Take

Auna S.A.A. (AUNA) has filed to raise $100 million in an IPO of its American Depositary Shares representing underlying Class A shares, according to an F-1 registration statement.

The firm provides healthcare services including oncology care in Peru and Colombia.

AUNA has seen contracting topline revenue due to the Covid-19 pandemic but has plans to continue expanding inside Peru and in other Latin American countries.

I’ll provide an update when we learn more IPO details from management.

Company & Technology

Lima, Peru-based Auna was founded to develop a network of hospitals and clinics to provide prepaid healthcare plans including cancer care service plans.

Management is headed by CEO Luis Felipe Casabonne, who has been with the firm since 2001.

Below is a brief overview video of Auna (in Spanish):

Source: Las Americas TV

The company’s primary offerings include:

Auna has received at least $175 million from investors including Peruvian private equity firm Enfoca.

Customer/User Acquisition

The firm operates healthcare networks and seeks to partner with physicians and related medical support staff to provide services to sick patients.

Selling expenses as a percentage of total revenue have been trending lower as revenues have fluctuated, as the figures below indicate:

Selling

Expenses vs. Revenue

Period

Percentage

Six Mos. Ended June 30, 2020

10.5%

2019

9.6%

2018

14.0%

Source: Company registration statement

The Selling efficiency rate, defined as how many dollars of additional new revenue are generated by each dollar of Selling spend, swung to a negative (0.6x) in the most recent reporting period, as shown in the table below:

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Selling

Efficiency Rate

Period

Multiple

Six Mos. Ended June 30, 2020

-0.6

2019

4.0

Source: Company registration statement

Market & Competition

According to a 2016 market research report by Oxford Business Group, the health sector in Peru has undergone material change since the passage of the Universal Health Insurance law in 2009, which established a basic coverage system and made a right to health care a matter of national law.

The system covers cancer conditions which has required increased government funds matching.

In addition, the growth of the country’s middle class has produced greater demand for private health insurance.

This is due to recent changes in the government systems, which have reduced reimbursement levels for some healthcare services.

Also, management says it faces significant competition ‘in a fragmented market like Peru and Colombia.’

Major competitive or other industry participants include:

  • Rimac Seguros y Reaseguros

  • El Pacifico-Peruano Suiza Compania de Seguros y Reaseguros

  • Numerous facilities in Colombia

Financial Performance

Auna’s recent financial results can be summarized as follows:

  • Contracting topline revenue

  • Reduced gross profit and gross margin

  • Lower operating profit and operating margin

  • Sharply reduced cash flow from operations

Below are relevant financial results derived from the firm’s registration statement:

Total Revenue

Period

Total Revenue

% Variance vs. Prior

Six Mos. Ended June 30, 2020

$ 177,700,000

-6.3%

2019

$ 390,100,000

61.8%

2018

$ 241,136,000

Gross Profit (Loss)

Period

Gross Profit (Loss)

% Variance vs. Prior

Six Mos. Ended June 30, 2020

$ 66,000,000

-9.2%

2019

$ 151,800,000

49.2%

2018

$ 101,752,000

Gross Margin

Period

Gross Margin

Six Mos. Ended June 30, 2020

37.14%

2019

38.91%

2018

42.20%

Operating Profit (Loss)

Period

Operating Profit (Loss)

Operating Margin

Six Mos. Ended June 30, 2020

$ 11,500,000

6.5%

2019

$ 47,200,000

12.1%

2018

$ 25,424,000

10.5%

Net Income (Loss)

Period

Net Income (Loss)

Six Mos. Ended June 30, 2020

$ (6,500,000)

2019

$ 20,800,000

2018

$ 10,248,000

Cash Flow From Operations

Period

Cash Flow From Operations

Six Mos. Ended June 30, 2020

$ 6,739,600

2019

$ 42,671,440

2018

$ 30,603,160

(Glossary Of Terms)

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Source: Company registration statement

As of June 30, 2020, Auna had $21.1 million in cash and $400 million in total liabilities.

Free cash flow during the twelve months ended June 30, 2020, was $3.7 million.

IPO Details

Auna intends to raise $100 million in gross proceeds from an IPO of its American Depositary Shares representing underlying Class A shares, although the final figure may differ.

Class A shareholders are entitled to the first $1 billion in dividends, after which Class A and B shareholders will share equally in dividends.

Management says it will use the net proceeds from the IPO as follows:

The principal purposes of this offering are to increase our capitalization and financial flexibility, create a public market for our common stock, and facilitate our future access to the capital markets. As of the date of this prospectus, we cannot specify with certainty all of the particular uses for the net proceeds to us from this offering. We currently intend to use the net proceeds from this offering for general corporate purposes, including acquisitions, expansion of our existing facilities, other capital expenditures and the repayment of indebtedness from time to time.

Management’s presentation of the company roadshow is not available.

Listed bookrunners of the IPO are Morgan Stanley and Goldman Sachs.

Commentary

Auna is seeking a U.S. IPO for its expansion plans.

The firm is private equity owned but doesn’t have an inordinate amount of debt, which is typical of private equity owned companies seeking to IPO.

The firm’s financials show topline revenue contraction due to the negative effects of the Covid-19 pandemic on elective procedures in its healthcare facilities.

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Selling expenses as a percentage of total revenue have been trending lower; its Selling efficiency rate swung to negative territory in the most recent reporting period.

The market opportunity for providing cancer care and other health services in a private hospital and clinic setting is uncertain due to changes in government reimbursement policies.

Yet, the company is expanding both inside and outside of Peru, so management must see opportunities to achieve scale while expanding into other Latin American countries.

When we learn more about the IPO, I’ll provide a final opinion.

Expected IPO Pricing Date: To be announced.

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Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.



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