# HSP - Healthscope Limited



## Sean K (3 November 2006)

Well, sorry again guys for posting about another blue chip that actually makes money.   

HSP has been rumoured to be a takeover target after a bit of a downdgrade in earning forecast and issues with bedding down an acquisition sent it's shares tumbling.    I owned them before that. 

Been following it very closely recently as I see it about to break above what has become a brick wall for the sp: $5.00. Just can't seem to crack it. However, I can see that it's biulding some momentum and all it's going to take is a good report (which by the price action I think is coming) and this will be off and running back to $6.00 and beyond. Even if a takeover doesn't come! A break under $4.75 would be a signal to sell.


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## Sean K (3 November 2006)

ooo,oooo, it might be going to close over $5.00!!! yeah!! Hold on HSP! I'll be topping up if it holds above over next couple of days. 

Now, if it closes above, and immediately goes down on Monday, I am going to look very silly.   

Hopefully XJO have a good night, to assist.


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## Sean K (4 November 2006)

XJO was OK, so the stock will be left to run it's own course. Finished at $5.02, just above resistance, and it's highest point in 9 months after crashing in Jan. Looking forward to some confirmation that it's cleared $5.00 before topping up.

My only worry is that the XAO looks toppy to me, so there's a chance for a short pullback soon, which will effect this of course...


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## Sean K (6 November 2006)

At $5.05. Tested $5.00 ish intraday and bounced off $4.96. Good sign. And $5.00 becomes resistance? Maybe. Another day to confirm. Need an OK night on the XJO again, then I'd be more comfy putting more on it.


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## dhukka (6 November 2006)

Pardon me Kennas for also talking about this blue chip that makes money and committing another sin by looking at fundamentals. Currently trading at about a 15% PE discount to the sector. Good growth profile 2 years out FY08 PE/growth of 0.7 makes it look cheap on a 2 year basis, any earnings positive annoouncements would make it look even cheaper. Any other large cap healthcare stocks look this attractive at the moment?

Looks as though it's pushed passed the resistance at $5.00, closed at $5.09 today.


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## Sean K (6 November 2006)

dhukka said:
			
		

> Pardon me Kennas for also talking about this blue chip that makes money and committing another sin by looking at fundamentals. Currently trading at about a 15% PE discount to the sector. Good growth profile 2 years out FY08 PE/growth of 0.7 makes it look cheap on a 2 year basis, any earnings positive annoouncements would make it look even cheaper. Any other large cap healthcare stocks look this attractive at the moment?
> 
> Looks as though it's pushed passed the resistance at $5.00, closed at $5.09 today.




Yeah great finish. I'm going to pick some more up I think. Although might wait for the RBA decision so there's a bit more certainty on where things are going short term. 

I held DVC for a while and recently sold. Can't see a higher bid coming. 

I've heard some good things about Vision (VSL) but haven't researched it. 

HSP is in Lonsdale Securites 'model portfolio' of just 8 stocks.


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## Sean K (10 November 2006)

HSP confirmed above $5.00 resistance and is looking good. Apart from the likelyhood of a pull back on the overall market this looks a great trade atm. Even so, I'm topping up just a little, as healthcare should do ok in a slide anyway. 

Long term 'investment' for me.


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## Sean K (10 November 2006)

Hitting $5.20 in early trade.


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## Sean K (10 November 2006)

Has behaved rather nicely for me. Good HSP. God boy!

$5.00 becomes pretty good support now.

Now, hopefully XJO doesn't crash tonight and wipe away all that good work...


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## Sean K (17 November 2006)

Very strange moves on HSP yesterday which scared the hell out of me. At one stage dropped way back to $5.00 for a couple of trades and then shot back up again. What the?? Still holding on to the breakout above $5.00 and looking ok. Analysts aren't really rating it that much atm with valuations about $5.00 - $5.50. Nothing spectacular. Just a long term solid play now imo. I'm hoping for private equity to swoop on this soon.


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## Sean K (23 November 2006)

I don't mind talking to myself on this one because, hey, I'm making money! he he.   

Apart from having an extremely unusual chart, HSP is approaching an old resistance level at $5.50 after what I thought was an important break through $5.00. 

I reakon HSP is just cruising at the moment and is going to keep chugging along onwards and upwards in the long term. Any weakeness will be another buying opportunity to me.

Plus, private equity seem to be buying anything at the moment and with an offer out there for DCA, this could be next off the rank. 

Go HSP!


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## CanOz (23 November 2006)

Lots of debt. But i see Perpetual recently took a 5% stake in them (Oct).

Cheers,


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## Sean K (30 November 2006)

Smashed through resistance at $5.50 yesterday and finished at $5.60   , inexplicably. My only regret thus far was not buying more on the break through $5.00 on CFDs....


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## tybutler (30 November 2006)

Kennas,

I have held these for a while and have made a nice gain. I off-loaded some DVC today and still want to keep those funds in the healthcare sector (long-term hold - aging pop. etc..). $5.50 seems reasonable to me for the long term, but what's your analysis short term? I have watched this one trend up for a while. Sustainable? 

Thanks for your charts.

Ty.


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## Sean K (30 November 2006)

tybutler said:
			
		

> Kennas,
> 
> I have held these for a while and have made a nice gain. I off-loaded some DVC today and still want to keep those funds in the healthcare sector (long-term hold - aging pop. etc..). $5.50 seems reasonable to me for the long term, but what's your analysis short term? I have watched this one trend up for a while. Sustainable?
> 
> ...



Will need to consolidate a bit soon. Maybe it will around $5.50. Long term I a believer for the same reasons as you.


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## Sultan of Swing (30 November 2006)

Missed this thread until now. I bought in to HSP in Feb after it took a dive and held out while it went lower. Glad I did! The last 2 - 3 months have been a nice ride.

Again, I think I'll hang in for the long haul.


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## Sean K (8 December 2006)

A sea of red for me and my watch list save a couple of stocks, HSP being one of them. Up 2.5% ish, which is noice.

Sitting at $5.50, having climbed 50c from the beakout at $5.00 when I started posting on it. 10% gain for a blue chip in a month or so will do me. Just wish I'd CFDd this instead of buying straight stock. Oh well, I'm still waiting for a better correction in the general market. Maybe then. 

Some resistance for this at $5.60 ish, so hopefully we have a good day or two on the XJO for a push through and back on to it's previous trajectory...


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## Gurgler (8 December 2006)

Kennas

Been looking at this one for a while.

From your chart can you explain the current significance (if any) of the blue line. 

After the events of Jan 06, what drew your interest to this stock?


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## Sean K (9 December 2006)

Gurgler said:
			
		

> Kennas
> 
> Been looking at this one for a while.
> 
> ...



I've owned this since mid 05, held after the crash, and bought back in after I was sure it was recovering. The blue line is the up trend support line pre crash. It was running pretty hard then though. Had to retrace somewhat, but not how much it did. Was way oversold.


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## Sean K (12 December 2006)

Ann released. Just bought out it's major competitor in Singapore. This is creating a great springboard into Asia. Good darts HSP. Perhaps this is why it's just broken through previous resistance at $5.50, now trading at $5.69.


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## Sean K (13 December 2006)

Can any market gurus explain to me why HSP would have opened up at $5.17 (from $5.60 close) with a whole bunch of crappy trades? 

Stop losses triggered by an incorrect trade. Error? 

Recovered back up now, but just darn weird.


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## Gurgler (13 December 2006)

Beats me what happened - but the result is we are now in this stock together as my Westpac buy order at 5.50 was picked up at open @ 5.31 (a bonus 19cents I hadn't counted on! How do they do that?). Strange indeed. Upside this may develop into a dialogue, rather than the loneliness of the long-distance trader!

I agree with you that this will develop into a worthy stock, factoring in the rising importance of the health sector (baby-boomers maturing etc.) and the fact that the Gribbles factor seems to be behind them. Management are still the same, I gather. My experience of health sector management when I was in the industry in the late-80's-early 90's is that there are sharks everywhere. None here I hope!


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## Sean K (13 December 2006)

There was some ann today about the ACCC protesting an acquisition in Queensland. No details atm, I'm in the middle of something else, but this might be a short term negative....

How's the sunshine up there?


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## ducati916 (13 December 2006)

*Kennas*

Just had a very quick look at the numbers on this one [HSP] and it looks ugly. I'll run the full set of numbers tomorrow, or later tonight, and post them when they are completed.

jog on
d998


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## Sean K (13 December 2006)

ducati916 said:
			
		

> *Kennas*
> 
> Just had a very quick look at the numbers on this one [HSP] and it looks ugly. I'll run the full set of numbers tomorrow, or later tonight, and post them when they are completed.
> 
> ...



Thanks Ducati.

I have a feeling that this is not going to pass your value test. It's a growth stock relying on lots of acquisitaions and Baby Boomers getting sick. Good in theory. 

I first looked at this as it's in Lonsec's Model Portfolio which has performed incredibly well over the past 3 years. Although, past performance....blah blah.

Anyway, very happy to have your analysis/opinion. Cheers.


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## Gurgler (13 December 2006)

kennas said:
			
		

> There was some ann today about the ACCC protesting an acquisition in Queensland. No details atm, I'm in the middle of something else, but this might be a short term negative....
> 
> How's the sunshine up there?






Is this the one K?
"ACCC to oppose Healthe's proposed acquisition of Brisbane Waters Private Hospital

The Australian Competition and Consumer Commission will oppose Healthe Care Australia Pty Ltd's proposed acquisition of Brisbane Waters Private Hospital, ACCC Chairman, Mr Graeme Samuel, said today.

Release # MR 304/06
Issued: 13th December 2006 

http://www.accc.gov.au/content/index.phtml/itemId/773125/fromItemId/2332


Were you asking me about the sunshine? It's currently very cold,windy and overcast!


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## ducati916 (14 December 2006)

kennas said:
			
		

> Thanks Ducati.
> 
> I have a feeling that this is not going to pass your value test. It's a growth stock relying on lots of acquisitaions and Baby Boomers getting sick. Good in theory.
> 
> ...




Understood, but from what I understand it was held through the correction, and now continues to be held as a growth stock.

There are two kinds of growth stock, internal growth & external growth [aquisitative] the second, while it can be successful, is fraught with problems.

jog on
d998


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## Sean K (14 December 2006)

ducati916 said:
			
		

> Understood, but from what I understand it was held through the correction, and now continues to be held as a growth stock.
> 
> There are two kinds of growth stock, internal growth & external growth [aquisitative] the second, while it can be successful, is fraught with problems.
> 
> ...



HSP is growing both internal and external and this is what I like about it's prospects. Baby Boomers are only just starting to clog up the hospital systems and with a focus in this area the growth over the next 15 years should be very good, as long as gene therapy and nano technology do not make traditional medicine obsolete! Perhaps that will occur in 20 years. HSP has been on the acquisition trail for some time and as long as it keeps it's gearing/debt levels reasonable, and they bed down the acquisitions smartly, then all good. Yes, this is the riskier part of this business. Should be upside in any future private equity snooping around. I am sure the ruler has been run over it, although at this stage I hope I'll be happy to hold for 5-10 years and keep topping up on weakness.


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## nizar (14 December 2006)

kennas said:
			
		

> HSP is growing both internal and external and this is what I like about it's prospects. Baby Boomers are only just starting to clog up the hospital systems and with a focus in this area the growth over the next 15 years should be very good, as long as gene therapy and nano technology do not make traditional medicine obsolete! Perhaps that will occur in 20 years. HSP has been on the acquisition trail for some time and as long as it keeps it's gearing/debt levels reasonable, and they bed down the acquisitions smartly, then all good. Yes, this is the riskier part of this business. Should be upside in any future private equity snooping around. I am sure the ruler has been run over it, although at this stage I hope I'll be happy to hold for 5-10 years and keep topping up on weakness.




Agree with all your thoughts on HSP. I did the numbers on this stock, spent a long long time, this was in January i think. Then, confident it would be a winner, i bought in, and a week later came a profit downgrade (by HSP) and the share price falls 30%. Gotta love the market.


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## Sean K (14 December 2006)

nizar said:
			
		

> Agree with all your thoughts on HSP. I did the numbers on this stock, spent a long long time, this was in January i think. Then, confident it would be a winner, i bought in, and a week later came a profit downgrade (by HSP) and the share price falls 30%. Gotta love the market.



LOL. Did you hold on? I bought pretty close to the top too. (same as DCA before it got smashed, and averaged down, and down, until I escaped even.   )

Back in front on this now after picking some more up at $5.00. 

Fingers crossed, no more surprises to the downside!


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## ducati916 (14 December 2006)

*kennas*



> _about another blue chip that actually makes money._




This was the line that initially caught my attention, as I remembered the meltdown earlier in the year as someone else had just been caught by the sudden writedowns etc, and was stuck in the stock near its top.

This business earns practically nothing.
How can I justify such a statement?
There are three major areas of extremely high concern [risk]

The first concerns asset sales, and the amount that they account of for Capital Expenditures, it is an enormous 84% of this current Cash-Flow statement, and 67% over the last 5yrs.

Why is this scary?
Simply because, if asset sales did not take place, or could not take place for some reason, Capital Expenditures would need to be funded via;
*Cash-flow
*debt
*equity issue
None of these options are palatable to current holders.
Therefore if CapEx was required to be funded from current Net Profits, they would shrink from $54.9 million, to $8.8 million.

How has it got so bad?
Simply because the purchased assets have been so overpriced.
Goodwill now accounts for 131% of Plant Property & Equipment.

Why is this a problem?
It is a problem as amortization of the Goodwill + Depreciation of PPE now accounts for 54% of the Operating Cash-flow. As it is considered a non-cash expense, people tend to ignore this cost. Incorrect. By doing that you inflate tremendously the cash-flow, and distort the true earning power of the business. Can I prove such an assertion?

Of course.
How has HSP funded the dividend payments, shown Net Profit?
It has issued since 2004 to 2006;
*$294.8 million equity
*$246.8 million debt
*$273.3 million equity
*writedown of Goodwill [to reduce amortization expense]
Total = $814.9 million issued + [- writedown]

There will in the future be almost certainly further writedowns, to relieve the Statements of the requirement to amortize the immense Goodwill component.

Profit margins have decreased from 21.5% to 10.2% 
This is a very dangerous development.
One reason is increasing costs.
The other is the huge burden of amortization + depreciation, which is why another writedown is on the cards in the future.

Working Capital.
Not investment grade. The Current ratio is 0.93, up from 0.83, this means that in a credit contraction, they could run out of cash, and go under.

Earning Power of the Assets.
All the purchased assets, improving the earnings of the business?
Well yes they are. They have improved from the truely rubbish of $0.52 per $1.00 invested to the just plain bad $0.72 per $1.00 invested. This is why there has to be so many equity offerings and increased debt, they are not earning any money.

From 2002 to 2006, compounded growth in;
*Revenues 38.8%
*Cost of Goods 42.3%
*Debt 58.2%
*Capital Expenditures 43.7%
*Net Income 20.2%
*Goodwill 275.5%
It is very obvious that the costs of staying in business are fast outpacing the point of staying in business. The two Income components are getting buried under an avalanche of increasing costs.

Why is the shareprice moving up?
Well it's a bullmarket, remember the dotcoms, no earnings, huge valuations.
Just because this has a certain tangible quality to the business don't let that blind you to the fact that the earnings are virtually non-existent, and at some point, that fact may become very apparent.

My valuation, you'll hate it, $0.50 to $0.79 per share is fair value.
I wouldn't touch it below $0.15

jog on
d998


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## Sean K (14 December 2006)

ducati916 said:
			
		

> *kennas*
> 
> My valuation, you'll hate it, $0.50 to $0.79 per share is fair value.
> I wouldn't touch it below $0.15
> ...



 :22_yikes: 

Thanks for the evaluation Ducati. I'll have to spend some time going through their annual report to work any of this out.


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## ducati916 (14 December 2006)

*kennas*

No problem.
jog on
d998


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## Sean K (14 December 2006)

ducati916 said:
			
		

> *kennas*
> 
> No problem.
> jog on
> d998



And get a sell order ready!


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## ducati916 (14 December 2006)

*kennas*

As a speculation, with a risk management plan, this is as good as any other speculation, have a tight stoploss.

As a long term investment, under the guise of a blue chip holding, this is a potential timebomb, as again large writedowns or worse could devastate the shareprice. 

jog on
d998


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## Sultan of Swing (14 December 2006)

ducati916 said:
			
		

> As a long term investment, under the guise of a blue chip holding, this is a potential timebomb, as again large writedowns or worse could devastate the shareprice.




Well, you've almost convinced me to sell!!   

I bought in in Feb at 4.23 so might just take my profit and run. 

As far as your analysis goes, I don't understand a lot of it however if I was looking at buying it today, it doesn't realy fit my preferred criteria. The interest cover is low, the debt/ equity ratio is way too high and it's return on capital and equity over the years is terrible. 

I'll think on it overnight.... I hate when I can see what may happen, don't sell, the worst happens and half the profits go down the drain. 

Thanks all.


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## ducati916 (15 December 2006)

Sultan of Swing said:
			
		

> Well, you've almost convinced me to sell!!
> 
> I bought in in Feb at 4.23 so might just take my profit and run.
> 
> ...




Well in the interests of full disclosure, I do not hold, nor intend to hold any positions in this security long or short.

That said, the area that is really murky in the Annual Report [2006] are the distinctions, classifications & clarity regarding Goodwill & Intangibles.

The Company lists no Goodwill at all.
Everything is listed under Intangibles.

Here is where it gets murky.
The Company draws a distinction between organic Intangibles & external Intangibles [pg 39] but does not create a line entry with this distinction. This is important, and goes back to the original problem of CapEx needing to be funded out of asset sales. Intangibles are where the business is developing future asset sales. Should there be a glitch, then CapEx must be funded in the previously detailed manner. Thus, I have simply classed everything as Goodwill, due to the aquisitative nature of the business and calculated from that [same] figure.

Why?

Simply because later, [pg 37] the company states that purchased Goodwill, is not classified separately, but classified as an Intangible. Goodwill is, and will be, if judged to be impaired, 







> _"recognised immediately in the profit and loss and is not subsequently reversed"_




This is in essence, pretty much what happened last time.
Nowhere are Goodwill, internal Intangibles & external Intangibles given separate line entries, and the classification seems arbitrary at managements discretion.........very risky.

In regards to Interest coverage, it has fallen from 12 times to 6 times, so a very valid and important observation.

With regards to making money, until this year, it had in real terms [operationally] lost money in 02/03/04/05 its returns are horrendus.

jog on
d998


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## Sultan of Swing (15 December 2006)

ducati916 said:
			
		

> In regards to Interest coverage, it has fallen from 12 times to 6 times, so a very valid and important observation.




I won't pretend I know how to read a company report ... yet!

I may be naive. I look at Commsec at the financials and it shows the interest cover at 2.69%. I'm not sure how accurate their calculations are but as I have nothing else that I can use, I do rely on them.

Thanks Ducati


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## ducati916 (15 December 2006)

*SoS*

Their data may be more up to date. I'm simply using the 2006 Annual Report from June, so a little behind. However, had you been following HSP as a holding, this would have been very obvious.

That the coverage is now down to below 3.0, well that says everything is not as it should be and beware should this be an "investment" rather than a "speculation"

jog on
d998


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## Sean K (21 December 2006)

Although Ducati's doom and gloom analysis is concerning, the market doesn't seem to be taking it into consideration at the moment. Traded at $5.70 this am, but has been pushed down by a whole bunch of crappy trades, which I think are mums and dads selling their dividends perhaps. Just weird. I mean a whole bunch of trades between 22 - 300 shares


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## Sean K (21 December 2006)

kennas said:
			
		

> Although Ducati's doom and gloom analysis is concerning, the market doesn't seem to be taking it into consideration at the moment. Traded at $5.70 this am, but has been pushed down by a whole bunch of crappy trades, which I think are mums and dads selling their dividends perhaps. Just weird. I mean a whole bunch of trades between 22 - 300 shares



Trading in this company is bamboozaling me. 

On the market depth there's a whole bunch of asks around 100-5000 and then, wham!, a buy order goes through for 81,989 shares at $5.70? About a half a mil? What the? Any ASX tech gurus who can explain this? Is this classed as an off market buy, buy an insto?


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## ducati916 (21 December 2006)

kennas said:
			
		

> Although Ducati's doom and gloom analysis is concerning, the market doesn't seem to be taking it into consideration at the moment. Traded at $5.70 this am, but has been pushed down by a whole bunch of crappy trades, which I think are mums and dads selling their dividends perhaps. Just weird. I mean a whole bunch of trades between 22 - 300 shares




It's a BULLMARKET, hell in the last US bullmarket eyeball views were an accepted financial metric for dotcoms that never earned a penny.

The business is [or should be healthcare] not buying and selling assets, that's a hedge fund. Unfortunately far too much of their income is predicated upon the purchase and sale of assets, that are carried as _intangibles_ that are not amortized, that can be re-valued at managements whim, and destroy book value overnight............my kinda stock!

jog on
d998


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## Sean K (21 December 2006)

ducati916 said:
			
		

> It's a BULLMARKET, hell in the last US bullmarket eyeball views were an accepted financial metric for dotcoms that never earned a penny.
> jog on
> d998



Yep agree. The dart board is winning most stock picking comps at the moment.

I'm still working on the 'not making any money' points you have raised.

I've asked my little bro about the stock and why his company have it in their 'model portfolio'. They have a 6.25% weighting on this out of 12 stocks in the portfolio. It's a top down portfolio so they have to pick something in healthcare (well, asset management according to you). He's the GM of Research, so I expect he knows something about it. 

Meanwhile I'm still trying to make heads and tails of your epic. Thanks again.


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## ducati916 (21 December 2006)

*kennas*



> _I've asked my little bro about the stock and why his company have it in their 'model portfolio'. They have a 6.25% weighting on this out of 12 stocks in the portfolio. It's a top down portfolio so they have to pick something in healthcare (well, asset management according to you). He's the GM of Research, so I expect he knows something about it. _




Now that is interesting.
Of course, "Top down" is quite different from bottom up, but I will be fascinated in their [his] response. Please let me know the outcome of their deliberations!

jog on
d998


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## Sultan of Swing (23 December 2006)

I bailed out last Monday at 5.55. I could have made a bit more but that's hind sight. I'm happy to take a profit. As I said earlier, my limited understanding of the fundemantals didn't stack up anymore. Again in hindsight, they never did stack up but I didn't know that at the time.


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## questionall_42 (22 February 2007)

I bought into HSP 1 year ago at 4.16 after the sp collapsed... patience has paid off. Closed today at 6.20. 

The negative sentiment in this thread has surprised me.  Given the recent sp rises and today's results, what do you believe the near future holds for HSP?

Any opinions welcome.


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## Sean K (22 February 2007)

Good question. The results look alright on the surface.

Ducati, any update? Where are the holes in the results here?

Cheers.


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## Halba (22 February 2007)

hi again kennas. it seems we both cover a variety of stocks. Results were OK good recovery stock, but notice it had a good run before the results. Seasonal decline in to next half to blame but health care sector is going good.


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## freebird54 (28 August 2009)

Capital raising just announced cant find the small print as usual

Is this for existing shareholders only or have we time to buy?


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## Out Too Soon (6 November 2009)

I don't know what to make of a group called Porter Capital yet but they are recommending a buy on this. It also came up when I was screening stocks as a possibility 
  I note Kennas used to be interested in this one, you still there Kennas? I havent gleened much info yet but the chart looks OK. (last 6 mths  )



 (own 43 private hospitals + just checking their website now  )


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## oldblue (6 November 2009)

I don't know much about TA but I wouldn't have thought that the SP falling below that red trend line was a good sign!

HSP's subsidiary Labtests is still copping a lot of flak over its Auckland contract and has recently had part of the contract terminated and handed back to the previous provider.


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## Out Too Soon (11 November 2009)

oldblue said:


> I don't know much about TA but I wouldn't have thought that the SP falling below that red trend line was a good sign!
> ----.




If the sp stayed below the red line yes, but now the doubters have been cleaned up, their stop losses triggered the sp has rebounded nicely.


Wish I'd jumped in at the bottom but I beleive there is still a nice profit to be made here, all depends on what happens when the SP meets that green SPAR line


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## Melthar (30 June 2014)

No trade sale, going to IPO.

July 28th on the Market,  Indicative price of $1.76 - $2.29/share, TPG Carlyle to retain 25%-40% 
Market Cap of $3.3-$3.8 Billion.

Seems like the website with offer details isn't loading as of yet.


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