5e82e64d-acd8-43ba-935d-e3802d1e3849.pdf



DS Healthcare Group, Inc. (DSKX)


February 29, 2016 Company Update Healthcare


Raghuram Selvaraju, Ph.D.

212-916-3966

rselvaraju@rodm.com


New Acquisition Strategy Takes Shape; Reiterate Buy



Stock Data

02/26/2016

Rating

Buy

Price

$1.51

Exchange

NASDAQ

Price Target

$6.00

52-Week High

$4.96

52-Week Low

$0.72

Enterprise Value (MM)

$43

Market Cap (MM)

$34

Public Market Float (MM)

11.9

Shares Outstanding (MM)

22.6

3 Month Avg Volume

95,611

Short Interest (MM)

0.50

Balance Sheet Metrics

Cash (MM)

$1.38

Total Debt (MM)

$0.47

Total Cash/Share

$0.07

Book Value/Share

$0.36

EPS Diluted

Full Year - Dec

2014A

2015E

2016E

1Q

(0.05)

(0.01)A

0.04

2Q

(0.04)

0.00A

0.04

3Q

0.00

(0.03)A

0.04

4Q

0.02

(0.13)

0.04

FY

(0.08)

(0.18)

0.16

FY P/E

NM

NM

9.4x

Revenue ($M)

Full Year - Dec

2014A

2015E

2016E

1Q

2.7

2.8A

15.8

2Q

3.7

3.7A

16.3

3Q

3.3

3.6A

16.5

4Q

3.7

4.0

16.8

FY

13.4

14.1

65.4

Transformative transaction announced. Last week, DS Healthcare announced that it has signed a definitive agreement to acquire Radiancy, Inc., a consumer medical device maker, and the Neova® dermatological products business from PhotoMedex, Inc. (PHMD; not rated). The transaction is being structured as a pair of reverse triangular mergers. According to the agreement, PhotoMedex shareholders are to receive a combination of $20M in convertible Series A preferred stock, a $4.5M note and 8.75M shares of DS Healthcare common stock, with 6M shares of the common stock being "make whole" shares that must have a value of $20M three years post-closing, or additional shares will be issued. We estimate the total consideration to be $48M, to be paid out over three years. Post-merger, PhotoMedex shareholders would own about 43% of the combined company, with DS Healthcare shareholders owning the remaining 57%. The boards of both firms have voted unanimously in favor of the transaction, which could close next quarter. Given this change in strategy, DS Healthcare is currently planning to conduct additional due diligence on the previously-planned WR Group acquisition transaction. In the wake of this update, while we await clarity on the evolving business strategy, we reiterate our Buy rating and 12-month price target of $6.00 per share.

2.5 Vol. (mil)

Price 5

2

4

1.5

3

Radiancy and Neova® businesses broaden distribution. The Radiancy product portfolio is currently sold through premium retailers. These include The Home Shopping Network in the U.S., QVC Group (QVCA; not rated) in the U.K., Italy and France, Bed Bath & Beyond (BBBY; not rated), and Boots (WBA; not rated). Radiancy's most well-known franchise is the no!no! portfolio of heat-based hair removal and phototherapy handheld devices. The Neova® portfolio's market presence is likely, in our view, to significantly expand DS Healthcare's presence in the physician-dispensed personal care consumer products domain. The firm intends to leverage its brand awareness in order to introduce the Neova products into its global pharmacy distribution platform in countries such as Colombia, Italy, Mexico, Portugal and Spain. Cross-selling would also permit DS Healthcare's own products to be sold to the 2,400 domestic professionals among whom Neova products are currently distributed in North America. DS Healthcare also plans to expand further into the rapidly-growing airline business, which involves in-flight shopping and a highly captive customer base with limited competition.

1

2

0.5

1

0

0

MAR-15 JUN-15 OCT-15 FEB-16

Further metrics to be released near term. The financing structure consists of DSKX restricted shares paid out over a three-year period with leak-out and lock-up agreements with a $2 floor. Management has indicated that they expect the combined firm to have an annualized revenue run rate of $60M. As and when the transaction is finalized, subject to shareholder and regulatory approval, we expect to have sufficient further clarity to update our long-term projections.

Valuation methodology. Using a price/sales multiple of 1.8x, applied to total revenue per share of $3.60, we derive a price objective of $6.00 per share. Employing a discount rate of 20%, sales and marketing offset of 55%, and a 45% effective tax rate, we derive an enterprise value of $115M, or a price per share of $6.00, based on 20M fully- diluted shares outstanding and net cash of $4M as of end-2016. Risks to our price objective include: (1) failure to close the planned acquisitions; (2) failure to achieve combinatorial synergies; and (3) a smaller-than-anticipated opportunity in the retail markets, due to market size, competition, and pricing.

For definitions and the distribution of analyst ratings, analyst certifications, and other disclosures, please refer to pages 3 - 4 of this report.

DS Healthcare Group, Inc. February 29, 2016



Table 1: DS Healthcare, Inc. (DSKX)-Historical Income Statements, Financial Projections


FY end December 31

$ in thousands, except per share data



1QA

2014A

2QA 3QA


4QA


2014A

2015

E


2015E


1QE

2016

2QE

E

3QE


4QE


2016E

1QA

2QA

3QA

4QE

Revenue

Product revenue Service revenue Research and other

Total revenue


Expenses

Cost of goods sold Research & development Selling and marketing General and administrative

Total expenses


Gain (loss) from operations


Other income/expense Interest income/expense

Realized loss on marketable securities Other income/expense

Total investment income and other


Income (loss) before provision for income taxes


Deferred income tax benefit

Provision for income taxes


Net income (loss)

Foreign currency translation adjustment

Net income (loss) attributable to shareholders


Net income (loss) per share (basic)

Net income (loss) per share (diluted)


Weighted average number of shares outstanding (basic) Weighted average number of shares outstanding (diluted)


2,684,964


3,744,434


3,278,117


3,706,750


13,414,265


2,803,920


3,659,548


3,637,629


4,000,000


14,101,097


15,800,000


16,300,000


16,500,000


16,800,000


65,400,000

-

-

-

-

-

-

-

-

-

-

-

-

-

-

-

-

-

-

-

-

-

-

-

-

-

-

-

-

-

-

2,684,964

3,744,434

3,278,117

3,706,750

13,414,265

2,803,920

3,659,548

3,637,629

4,000,000

14,101,097

15,800,000

16,300,000

16,500,000

16,800,000

65,400,000


1,202,518


1,802,898


813,671


1,461,822


5,280,909


1,138,760


1,595,181


1,216,386


2,200,000


6,150,327


6,715,000


6,846,000


6,765,000


6,720,000


27,046,000

-

-

-

-

-

-

-

-

-

-

70,000

100,000

120,000

150,000

440,000

970,022

1,194,238

912,345

1,022,814

4,099,419

776,778

890,766

1,563,620

1,700,000

4,931,164

2,100,000

2,200,000

2,300,000

2,400,000

9,000,000

1,333,944

1,338,536

1,668,807

958,493

5,299,780

1,078,140

1,147,325

1,396,060

2,500,000

6,121,525

5,200,000

5,500,000

5,700,000

5,900,000

22,300,000

3,506,484

4,335,672

3,394,823

3,443,129

14,680,108

2,993,678

3,633,272

4,176,066

6,400,000

17,203,016

14,085,000

14,646,000

14,885,000

15,170,000

58,786,000

(821,520)

(591,238)

(116,706)

263,621

(1,265,843)

(189,758)

26,276

(538,437)

(2,400,000)

(3,101,919)

1,715,000

1,654,000

1,615,000

1,630,000

6,614,000


(27,545)


(22,443)


(8,888)


(12,660)


(71,536)


(15,855)


(24,957)


(42,280)


(100,000)


(183,092)


(700,000)


(700,000)


(700,000)


(700,000)


(2,800,000)

-

-

-

-

-

-

-

-

-

-

-

-

-

-

-

(1,088)

10,036

57,766

(41,494)

25,220

120,475

(10,870)

9,115

-

118,720

-

-

-

-

-

(28,633)

(12,407)

48,878

(54,154)

(46,316)

104,620

(35,827)

(33,165)

(100,000)

(64,372)

(700,000)

(700,000)

(700,000)

(700,000)

(2,800,000)

(850,153)

(603,645)

(67,828)

209,467

(1,312,159)

(85,138)

(9,551)

(571,602)

(2,500,000)

(3,166,291)

1,015,000

954,000

915,000

930,000

3,814,000

-

-

-

-

-

-

-

-

-

-

-

-

-

-

-

-

(31,527)

13,332

18,195

-

-

-

-

-

-

(182,700)

(190,800)

(201,300)

(213,900)

(788,700)

(850,153)

(635,172)

(54,496)

227,662

(1,312,159)

(85,138)

(9,551)

(571,602)

(2,500,000)

(3,166,291)

832,300

763,200

713,700

716,100

3,025,300

25,546

(40,439)

(20,567)

20,567

(14,893)

(14,893)

-

(38,398)

-

(53,291)

-

-

-

-

-

(820,236)

(673,778)

(75,063)

248,229

(1,320,848)

(100,031)

(9,551)

(610,000)

(2,500,000)

(3,219,582)

832,300

763,200

713,700

716,100

3,025,300

(0.05)

(0.04)

(0.00)

0.02

(0.08)

(0.01)

(0.00)

(0.03)

(0.13)

(0.18)

0.04

0.04

0.04

0.04

0.16

(0.05)

(0.04)

(0.00)

0.02

(0.08)

(0.01)

(0.00)

(0.03)

(0.13)

(0.18)

0.04

0.04

0.04

0.04

0.16

15,967,533

16,085,112

16,091,202

16,120,950

16,066,199

16,256,461

17,043,601

17,944,353

19,201,950

17,611,591

19,224,990

19,225,140

19,225,290

19,225,440

19,225,215

15,967,533

16,085,112

16,091,202

16,120,950

16,066,199

16,256,461

17,043,601

17,944,353

19,201,950

17,611,591

19,224,990

19,225,140

19,225,290

19,225,440

19,225,215

Source: Company reports and Rodman & Renshaw estimates.



Rodman & Renshaw 2

Research is created and distributed by and securities are offered through H.C. Wainwright & Co. LLC, Member FINRA/SIPC, which conducts certain research activities under the name Rodman & Renshaw.

Important Disclaimers


Rodman & Renshaw is a unit of H.C. Wainwright & Co., LLC. Research is created and distributed by and securities are offered through H.C. Wainwright & Co. LLC, (the "Firm") Member FINRA/SIPC, which conducts certain research activities under the name Rodman & Renshaw.


H.C. WAINWRIGHT & CO, LLC RATING SYSTEM: H.C. Wainwright employs a three tier rating system for evaluating both the potential return and risk associated with owning common equity shares of rated firms. The expected return of any given equity is measured on a RELATIVE basis of other companies in the same sector. The price objective is calculated to estimate the potential movements in price that a given equity could reach provided certain targets are met over a defined time horizon. Price objectives are subject to external factors including industry events and market volatility.


RETURN ASSESSMENT


Market Outperform (Buy): The common stock of the company is expected to outperform a passive index comprised of all the common stock of companies within the same sector.

Market Perform (Neutral): The common stock of the company is expected to mimic the performance of a passive index comprised of all the common stock of companies within the same sector.

Market Underperform (Sell): The common stock of the company is expected to underperform a passive index comprised of all the common stock of companies within the same sector.



Investment Banking Services include, but are not limited to, acting as a manager/co-manager in the underwriting or placement of securities, acting as financial advisor, and/or providing corporate finance or capital markets-related services to a company or one of its affiliates or subsidiaries within the past 12 months.

Distribution of Ratings Table


Ratings Count Percent

IB Service/Past 12 Months

Count Percent

Buy

156 97.50%

42

26.92%

Neutral

4 2.50%

2

50.00%

Sell

0 0.00%

0

0.00%

Under Review

0 0.00%

0

0.00%

Total

160 100%

44

27.50%


I, Raghuram Selvaraju, Ph.D. , certify that 1) all of the views expressed in this report accurately reflect my personal views about any and all subject securities or issuers discussed; and 2) no part of my compensation was, is, or will be directly or indirectly related to the specific recommendation or views expressed in this research report; and 3) neither myself nor any members of my household is an officer, director or advisory board member of these companies.


None of the research analysts or the research analyst's household has a financial interest in the securities of (including, without limitation, any option, right, warrant, future, long or short position).

As of January 31, 2016 neither the Firm nor its affiliates beneficially own 1% or more of any class of common equity securities of DS Healthcare Group, Inc..

Neither the research analyst nor the Firm has any material conflict of interest in of which the research analyst knows or has reason to know at the time of publication of this research report.

The research analyst principally responsible for preparation of the report does not receive compensation that is based upon any specific investment banking services or transaction but is compensated based on factors including total revenue and profitability of the Firm, a substantial portion of which is derived from investment banking services.


The Firm or its affiliates did receive compensation from DS Healthcare Group, Inc. for investment banking services within twelve months before, and will seek compensation from the companies mentioned in this report for investment banking services within three months following publication of the research report.


The Firm does not make a market in DS Healthcare Group, Inc. as of the date of this research report.


The information contained herein is based on sources which we believe to be reliable but is not guaranteed by us as being accurate and does not purport to be a complete statement or summary of the available data on the company, industry or security discussed in the report. All opinions and estimates included in this report constitute the analyst's judgment as of the date of this report and are subject to change without notice.


The securities of the company discussed in this report may be unsuitable for investors depending on their specific investment objectives and financial position. Past performance is no guarantee of future results. This report is offered for informational purposes only, and does not constitute an offer or solicitation to buy or sell any securities discussed herein in any jurisdiction where such would be prohibited. No part of this report may be reproduced in any form without the expressed permission of

H.C. Wainwright & Co, LLC. Additional information available upon request.

DS Healthcare Group Inc. issued this content on 15 March 2016 and is solely responsible for the information contained herein. Distributed by Public, unedited and unaltered, on 15 March 2016 21:59:08 UTC

Original Document: http://www.divineskininc.com/press-releases/1458078405DSHealthcareGroupRodmanandRenshawNewAcquisitionStrategyTakesShapeReiterateBuy.pdf