# ZNT - Zenitas Healthcare



## Faramir (22 June 2018)

Does anyone know anything about Zenitas Healthcare? Community based integrated healthcare will be appealing for an aging population. Does anyone think their asquisitions were too aggressive? Never purchased a micro-cap before. Obviously a speccy for me but read this quarterly report from April 2018

http://www.zenitas.com.au/static/up...-quarter-ended-31-march-2018-wfnnudpesjdq.pdf

This stock doesn't move nor have much activity. I will discuss more later.


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## greggles (22 June 2018)

Not familiar with this one Faramir, so am interested in your thoughts. The last quarterly looks promising with revenue of $28 million and net operating profit of $2.23 million. FY18 EBITDA guidance of $13 million to $13.5 million and around $11 million in cash.

The aged care industry is only set to grow IMO, although with a market cap of around $75 million I'm not sure ZNT qualifies as a micro-cap.


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## galumay (22 June 2018)

The only thing that jumped out to me in a quick scan of the 4C was cash burn next Q $34m, with a big jump in employee costs. Would need a large upswing in revenue to make the Q cash positive - but I only had a quick glance so may be missing some material change in the business.


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## Faramir (22 June 2018)

@greggles I stumbled upon Zenitas from this report:
https://www.livewiremarkets.com/wires/5-microcaps-on-our-radar
Of the five stocks listed, Zenitas' story was the one I liked the best. I kept thinking to myself, this is a new company. There are acquisitions. It can be argued that maybe they are buying too much too soon but Zenitas has its own organic growth at 7.5%

The half yearly report:
A turn around from loss to profit.
https://www.asx.com.au/asxpdf/20180227/pdf/43ryv10s8plzs2.pdf

Maybe this is the Presentation that did it for me.
https://www.asx.com.au/asxpdf/20180531/pdf/43vfncrd0p9y9g.pdf

I clearly understood what Zenitas did and if I had to say something to a young kid: "I put a bit of money into Zenitas because they help old people stay at home and they watch them and make sure they get care. There will be more old people in the future."

Did I jump on too soon before Zenitas has proven itself? Maybe? Maybe I suffered 'confirmation bias' after reading the last report. Normally I am not influence by articles and then made to do more investigations on my own.

Chartwise: it is not looking good. A capital raise early this year didn't help. I can live with it. I will sit tight and do nothing because Zenitas will take a long while to prove itself. (I have patience.) I used the price drop as a buying opportunity.


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## Faramir (22 June 2018)

@greggles I am no chartist. Maybe you can comment what you think the next pattern will be?? Low volume and low range right now. Waiting for the next big news.

Close price today $0.99. I got 2980 shares at $1.01 last week.


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## Faramir (22 June 2018)

galumay said:


> The only thing that jumped out to me in a quick scan of the 4C was cash burn next Q $34m, with a big jump in employee costs.



Extra staff onboard due to acquisitions. They were generating their own income I believe (unless I missed something.) I am still learning. This is my first attempt to buy something before it becomes mainstream. Before it is "discovered". It is outside ASX 300. I am taking a risk but I am aware of it.


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## galumay (22 June 2018)

Faramir said:


> Extra staff onboard due to acquisitions.




Ok, that makes sense, @Faramir I will have a bit more of a detailed look at the business. We are all getting older after all!


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## skc (25 June 2018)

Hi guys,

I've been looking at ZNT as well but haven't pulled the trigger. Here are some random notes...

1. I like it from a top-down / industry perspective. Demographic trends are favourable and hospital costs are rising. I've read about how Medibank is trialling in-home care for some of its rehab expenses, while the government sector is also huge. The industry should see pretty good growth for some years.

2. No doubt ZNT is a roll up play. And if there's ever a time to buy a roll up play it's when it just getting started. Think GXL a decade ago.

3. ZNT is just listed so it lacks a proven record. In deed it is nothing more than a few standalone businesses bundled together into an IPO. Despite favourable macro, they still need to execute their plans. 

4. From a valuation perspective, the current share price doesn't really place much value on a potential long runway of acquisitions that is on offer. FY18 EBITDA proforma (with all announced acquisitions) of $19m has the company trading at EV/EBITDA ~5x, so one can argue that you are buying the business as it is at reasonable price with a free option on future expansion.

5. On a negative note... the lack of valuation support makes acquisition less effective. Imagine being able to issue new shares at 10x EBITDA to acquire private businesses at 4x. It'd be a valuation arbitrage machine like many others before it.

6. Buying today is buying plenty of intangibles. A management mishap here or there and the _potential _growth runway would be just that. I haven't had the time to do the due diligence on the management yet, and hence I haven't had the conviction to buy.

7. There will be plenty of capital raisings along the way. So one approach may be to go small and look to top up as they prove themselves. 

The above notes are just thoughts from about 45 minutes of research.

DYOR.


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## Faramir (25 June 2018)

@skc thank you for your input. Maybe I should have been more patient. Points 1, 2 and 4 cements my confirmation bias. Points 3, 5 and 6 made me treat ZNT as a speccy. Glad that you mentioned Point 7. This is definitely I should have considered. I knew I didn't get everything or even "most" things but I felt comfortable enough that I got enough (info) for me to make a purchase. The main question that only time will tell: did I pay the wrong price?


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## McLovin (27 June 2018)

I have a small s/holding in ZNT. It has a lot of potential, right sector, right demographics etc but like any early stage roll-up has plenty of execution risk around valuation/integration etc. The business at the moment almost runs like a LIC of healthcare businesses. Over time, I assume, there will be a bit more integration perhaps into a few brands rather than each acquired business being its own brand. What is great is that this is a roll-up that actually has decent organic growth inside the businesses. When you take a valuation arbitrage with decent organic growth it can be serious dynamite once it gets rolling.

The management seem OK. No standouts either positive or negative. The chairman is ex-VEI and ex-CEO of Symbion. That's not bad pedigree, although he is also chair of FUN, for some reason. One of the NED's worked for Arowana, and Arowana always reminds me of IQE. (Someone from Arowana once told me to have a look at IQE as an investment). 

Assuming it can meet FY19 EBITDA it's pretty cheap where it is at the moment. With a re-rating as the strategy starts to unfold successfully then it could do big things.


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## McLovin (27 June 2018)

skc said:


> 1. I like it from a top-down / industry perspective. Demographic trends are favourable and hospital costs are rising. I've read about how Medibank is trialling in-home care for some of its rehab expenses, while the government sector is also huge. The industry should see pretty good growth for some years.




Nice to see you back here, skc.

I think this is a really strong point. I'm pretty sure you'd know this, but primary healthcare is one of the best ways to reduce the overall cost of the healthcare industry. You want the patient turning up for a blood pressure check at the GP and getting some pills rather than the patient having a stroke or heart attack and requiring months of intensive care treatment. With an ageing population getting disease caught early and managing it will become pretty important to keeping healthcare costs down. The allied services stuff is good to from a "fleet maintenance" perspective. (if we can call the baby boomers a fleet of boomers!)


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## skc (27 June 2018)

McLovin said:


> Nice to see you back here, skc.




Hi McLovin... just a small cameo. 

Yeah I think the top down thematic is quite compelling. Just hope that ZNT or or some other operator won't turn the government funded homecare into another vocation-training scam gravytrain.


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## McLovin (27 June 2018)

skc said:


> Hi McLovin... just a small cameo.
> 
> Yeah I think the top down thematic is quite compelling. Just hope that ZNT or or some other operator won't turn the government funded homecare into another vocation-training scam gravytrain.




True. But on the flipside, PPP in the healthcare space has a pretty long history. In vocational training it was all brand new and poorly regulated.


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## greggles (31 July 2018)

Zenitas Healthcare announced this morning that it has settled the acquisition of Australian Home Care Service. The acquisition price of $4m was funded 100% from the company's existing cash reserves. The first year revenue and EBITDA is expected to be $38m and $2m respectively. A nice return on investment.

Looks like ZNT is finally attracting some serious interest. It gapped up this morning and is currently trading at $1.11, up 6.22%.


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## McLovin (31 August 2018)

Private equity offer at $1.46/share. Nice.


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## Faramir (31 August 2018)

This stock is not a speccy. Wished I put more into it. I only ever have two regrets:
1): Why did I buy
OR
2): Why didn’t I buy more

At least I don’t have the third regret:
3): Why did I sit on the sidelines?

Good return for a very short holding period so far. Two and half months. Still need to wait until Nov for the voting, approval, etc. Hope there’s a counter bid but I have no way of telling if that will happen.


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## peter2 (31 August 2018)

4) Why didn't I notice ZNT in my scan results Mon and Tues? I'm baffled.


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## McLovin (31 August 2018)

What was the ASX, and the company itself, doing allowing ZNT to trade briefly this morning when the AFR was reporting a t/o but the company had not yet made an announcement? Poor form.


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## Faramir (31 August 2018)

@greggles and @peter2 I think the opportunity to enter now is lost unless you want to hope or bet that there will be a counter offer.




(1) Although I started to feel a bit nervous, I knew that I was in for the long haul. So the slight downward trend didn't bothered me. I was still in profit. I forgot to mark my purchase date of 12 Jun 2018 @ $1.01
(2) The sudden upturn made me think WOW, reporting results must be good. The volume looked much higher relative to previous volumes.
(3) Today: The results were very positive but the take-over offer floored me. I think $1.46 is not high enough. There is so much potential for growth. Zenitas made a round of quality purchases and these acquisitions were going to made money.

(Sorry, my chart reading skills are near zero but my emotional reactions to them is dramatic.)

@McLovin and @galumay Look at these highlights










Cash Flow is going to flow. What a turn around! Revenue up 78%!

I feel very ripped off. I also experienced this with Veda, a great company but it was taken over. Now I have to wait until November and do nothing. At least there is a dividend.

I know nothing about Adamantem Capital Management Pty Limited (Adamantem) and Liverpool Partners Pty Limited (Liverpool Partners). I have no clue if this deal would fall over??? I doubt it. What a day to release the take-over news. The same day as their Annual report.

I shouldn't complain about a 39% gain for today but I feel Zenita had more juice in it.

Please provide feedback. I know this is a very primitive post, so I need to learn.


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## Faramir (15 November 2018)

skc said:


> 2. No doubt ZNT is a roll up play. And if there's ever a time to buy a roll up play it's when it just getting started. Think GXL a decade ago.



99.2% or roughly that voted in favour of the takeover. ZNT got started but we never knew what its potential would be.



McLovin said:


> What is great is that this is a roll-up that actually has decent organic growth inside the businesses. When you take a valuation arbitrage with decent organic growth it can be serious dynamite once it gets rolling.
> 
> Assuming it can meet FY19 EBITDA it's pretty cheap where it is at the moment. With a re-rating as the strategy starts to unfold successfully then it could do big things.




Now I don't care if ZNT meets its FY19 EBITDA. Now it's time to wait until 12 Dec 18 and it will be all over. I guess I will be taxed a bit more since my holding will be 6 months but I didn't buy that many shares, so my tax will be nearly nothing.

Where/how does someone finds companies like ZNT??


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## System (14 December 2018)

On December 12th, 2018, Zenitas Healthcare Limited (ZNT) was removed from the ASX's Official List in accordance with Listing Rule 17.11, following implementation of the scheme of arrangement between ZNT and its shareholders in connection with the acquisition of all the issued capital in ZNT by Guardian Alphabet Pty Ltd.


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## Faramir (14 December 2018)

Good bye Zenitas. My funds came in yesterday. Just in time as my car broke down last Friday and it is undrivable. Head Gasket blown,engine block probably has a crack in it as well. My old car sold to a mechanic for only $750. I need a car for my tiny business.

I remember ummming and arrhhhing and hesitating about buying ZNT. Yet I brought my next car yesterday: Toyota Corolla 2016 Manual - no one Sydney wants to drive a manual. 11,500km, $15,500. I guess I saw an opportunity with this car. I just don't see opportunities with stocks. I didn't hesitate spending that money from my 'emergency' business fund. Now my emergency account is very very down. Yet I really hesitate spending anything from my investment account. (At least I don't have a car loan.)

I should try to repay my emergency fund but I would rather top up my investment. I was so confused as to what to do with my ZNT funds. Now my old car made that decision for me.

If I loathe having a car loan, then I didn't have the stomach to take out a margin loan with ZNT (or any stock). The recent down turn did not affect ZNT.


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## galumay (15 December 2018)

Sounds like it worked out for the best for you @Faramir. That seems a very good price for such a low mileage car.


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