Biotech Values

[Jonathan Robinson]

The discount to NAV is artificially large (and will remain so until after the 0.29/sh dividend payment on Sep 29) because HQL began trading ex-dividend on Sep 6.


I think that answer is mistaken as a liability is created the day it goes ex-d, reducing NAV by a like amount. I cannot find data to confirm this movement but if the NAV fell by 2% or so on 9/5 or 9/6 (relative to move it should have made), this interpretation is right. I will try to confirm.

As for the rest of the discount, part of the answer lies in fact that one share entitles you to 1 share at NAV plus the right to have a partial share at .95. So after the issue, HQL will have 100 cents from initial shares plus 1/3*(.95*94 cents) = 100+1/3*.89=1.298. Divide this by share count of 1.33333 = each current share being fairly priced at 97% of NAV. Add the 2% "normalized" discount of HQH and you have a 5% or so discount being ok. (Of course the "fair" discount should work through a feedback loop into the equation above where I have use .94, but that is too complicated and one has to determine which discount is right anyway.)

Jon