Communicating Value and Increasing Transparency

Posted by | January 13, 2011

Cash on our balance sheet may be growing with every well-timed exit transaction and positive momentum is driving Safeguard’s stock price upward; however, our IR team has a never-ending challenge to articulate, to new and existing institutional and retail Investors, Safeguard Scientifics’ improved financial strength and flexibility. In short, our main objective each and every day is to communicate Safeguard’s value proposition and increase transparency into our portfolio of companies. This goal is oftentimes impeded by the following challenges:

  • Safeguard competes for attention in a land of giants. Our market capitalization is small but growing ― it was approximately $367 million as of yesterday’s close, compared with less than $190 million a year ago. For comparison, the Blackstone Group (NYSE: BX), a publicly traded peer with a comparable business model, has a market cap of $5 billion.
  • Safeguard is a source of “patient” capital for growth-stage life sciences and technology companies. Safeguard’s status as a publicly-traded company enables us to be a patient partner. We are not subject to the limits of a fundraising cycle (typical with venture capital or buyout firms), enabling us to focus on growing our partner companies’ value at an appropriate pace. Translation: It takes time and patience to deliver cash-on-cash returns of 3x to 5x. For partner companies Clarient and Avid Radiopharmaceuticals, mergers were negotiated in 2010 with GE Healthcare and Eli Lilly, respectively. Clarient refocused its business on cancer diagnostic services under new management beginning in late 2004. Meanwhile, Safeguard first deployed capital in Avid in 2007. Those exit transactions represent well-timed exits and cash-on-cash returns of at least 3x for us.
  • Safeguard’s institutional and retail investors must dig deeper into our business model to evaluate the potential of our growth portfolio.  Our value as a holding company can be obscured by the lack of conventional valuation metrics, such as earnings per share. We usually discuss “sum-of-parts” valuation models with potential investors. To highlight the successful development of our partner companies, we also emphasize aggregate partner company revenues; disclose transactions and valuation for comparable competitors when possible; and publish our capital deployed in and carrying value of partner companies. The objective here is to provide investors with enough data to construct models of net asset values, but not to tip competitors about sensitive internal assessments of partner company values. Oftentimes, that can be a tough assignment.

Despite these sometimes challenging initiatives, Safeguard is attracting more attention from investors, due to our solid fundamentals – growing partner company revenues, increasing cash balances and declining corporate debt. Partner company revenues were up 73 percent in the third quarter from the same period in 2009, and we increased guidance on annual aggregate company revenue for the second time in 2010 to a range of $360 million to $385 million. 

The Clarient and Avid mergers added $180 million to Safeguard’s cash balances on a pro forma basis. Moreover, our October Investor Day event exposed more investors to the solid growth and high potential of the rest of Safeguard’s partner companies, including Advanced BioHealing, AdvantEdge Healthcare Solutions, MediaMath, NuPathe (Nasdaq: PATH), and Good Start Genetics.

Clearly, momentum is building at Safeguard. In 2010, Safeguard’s stock price climbed 54 percent to $17.08 per share at the close of trading on December 31. Yesterday, our stock closed at $17.84 per share. The six sell-side analysts who follow Safeguard say there is more upside; they have revised near-term price targets to a range of $16.50 to $20 per share, in anticipation of more exit transactions in 2011 within our cash-on-cash return target of 3x to 5x.

To support that momentum, we continue to operate an aggressive, proactive investor relations initiative. We work with sophisticated databases to identify new investors; schedule presentations at domestic and international investment conferences throughout the year; and actively promote the development of our partner companies through press releases, website updates and social media platforms such as LinkedIn, Twitter, YouTube and our blog. Be sure to follow us via RSS Feed from our website or our blog.

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