CAJ - Capitol Health

[csquaredau]

Magic of numbers.

Revenue and Profit goes up but mainly due to management fees coming down

Nearly $7m of increased revenue results in -$700k of Net cash from Operating activities.

Why has this stock gone up in value? :1zhelp:

 

[Ves]

I looked at this a few weeks back & agree that the accounting looks suspicious. I was turned off by the fact that the working capital deficiency looked dubious. I have a feeling that this is why they raised capital (not two days after releasing a profit upgrade!). The announcements concerning this are also fairly amateurish... hard to know what their intentions were, because they seemed to have changed them after the first annoucement.

From what I can tell they previously did a lot of dental imaging work for unrelated parties (hence higher management fees which are really labour costs on a billing basis). However, this will not happen going forward. Something to do with government funding for this kind of work being cut? I would also assume that this work was lower margin.

Therefore there would be a subsequent decrease in revenue for this kind of work. So one would assume that they have increased the amount of services that they provide in other areas (or this top-line growth has come from previous acquisitions).

This is a business in transition. They have changed from CAT scans to MRI scans. The profitability metrics are better with the former from what I have understood. The medicare exclusivity that they will be receiving from the government going forward could be turned into a moat. However this is not truly sustainable forever. Remember, what can be given, can be taken away. I am always wary of health stocks because they are heavily regulated and the government loves changing the rules (have a look at VEI's announcement last week). I would also imagine that this kind of business is capital intensive. Medical equipment is not cheap. They do not seem to generate much in the way of free cash flow at the moment, and rely on debt to make acquisitions.

 

[McLovin]

I looked at this a few weeks back & agree that the accounting looks suspicious. I was turned off by the fact that the working capital deficiency looked dubious. I have a feeling that this is why they raised capital (not two days after releasing a profit upgrade!). The announcements concerning this are also fairly amateurish... hard to know what their intentions were, because they seemed to have changed them after the first annoucement.

Just a thought, I haven't spent any time looking at this company, but it is possible given the type of business they are in they can work with negative WC. I got an MRI and I had to pay upfront and then get reimbursed a % by my health fund.

 

[csquaredau]

Strange with all the revenue and profit growth very little improvement in current assets vs current liabilities.

 

[skc]

Strange with all the revenue and profit growth very little improvement in current assets vs current liabilities.

Here are the numbers of current assets / current liabilities of some other companies (2012 to 2010).

PRY: 1.026, 1.270, 1.183
SHL: 0.729, 1.666, 0.904
CSL: 3.625, 2.919, 4.243
MND: 1.262, 1.192, 1.167

CAJ: 0.452, 0.361, 0.357

Is the trend really meaningful indication of anything? What's the point of having large holding of current assets when they should be converted to fixed assets like more equipment?

The only issue you need to worry about with CAJ is the negative working capital... which is actually a benefit to shareholders as a source of cheap funding to the company if it can be used sustainably.

 

[Ves]

Just a thought, I haven't spent any time looking at this company, but it is possible given the type of business they are in they can work with negative WC. I got an MRI and I had to pay upfront and then get reimbursed a % by my health fund.

That's where I was spliting hairs the most. The thing that complicates it (and admittedly has improved in 2012) is the debt payments due. It makes the balance sheet look more lop-sided than I would otherwise feel comfortable.

When I first looked at it, it had negative net tangible assets. There was also a "going concern" note in the accounts because of this. Just a couple of red flags.

Lots of businesses successfully abuse negative WC setups, but the wider the gap gets the riskier the proposition becomes. Suddenly you have too small a cash float and all of your payables start falling due. That's the difference between something like DTL and CAJ.

 

[csquaredau]

-$4.3m liabilities exceed assets. why would they give themselves big pay rises and why would they pay a dividend. Surely they need to get business fundamentals right.

 

[pixel]

-$4.3m liabilities exceed assets. why would they give themselves big pay rises and why would they pay a dividend. Surely they need to get business fundamentals right.

Could this chart provide an answer?



Sure, it's well after your complaint, but that's the nature of trading.
I'm trading the swings in channels like this; right now, I'm waiting for the iceberg seller to exhaust his supply at 24c; if that happens, I'll likely top up. Otherwise, stop out.

 

[leyy]

This beauty of a small cap has been going higher and higher over the last year it reached a new high of 0.45 cents today.

Business is going well with the acquisition of MDI Group, realising the benefits and synergies.

Great potential for growth (organic and acquisitions) as they only operate in Victoria.

Paying dividends and cash flow positive

 

[Country Lad]

Great potential for growth (organic and acquisitions) as they only operate in Victoria.

I looked at it as a business with significant natural growth. The aging population should prove positive for these types of businesses. I now have more than enough and will give the stops more room for retracements.

Cheers
Country Lad

 

[leyy]

Thanks for the chart CL.

Yes agreed with the aging population and baby boomers retiring this should be of great benefits to CAJ.

The only concern is instability with government and regulatory changes with medicare and rebates etc which could heavily impact CAJ.

I am holding CAJ in both my personal and SMSF.

I too have given more room for retracement and widened my stop loss, so I don't get taken out before their next leg up.


cheers

leyy

 

[pixel]

This beauty of a small cap has been going higher and higher over the last year it reached a new high of 0.45 cents today.

Business is going well with the acquisition of MDI Group, realising the benefits and synergies.

Great potential for growth (organic and acquisitions) as they only operate in Victoria.

Paying dividends and cash flow positive

Nice retracement off the Highs:



I got some today on the rebound; current vwap 36.4c and rising.

 

[leyy]

Still Holding CAJ and it is prodding north nicely.

Reached new highs again this week and closed at $0.63 today.

Trading at a PE of circa 42 now.

CAJ is 50% of my SMSF portfolio now as it has increased in value so much over the last 18 months.

Will probably look at selling a parcel of shares to de-risk this week.

 

[nomadic1970]

I got some in the last month also and cannot complain

They have got a good niche business, and with an aging population can only get better for them. Cannot see any negatives at the moment.

 

[skc]

New Position

10/2/2011 Buy 150,000 CAJ @ 3.7c = $5,550.

Rationale

CAJ is a small scale independent diagnostic imaging outfit with 28 sites. FY09/10 was a turnaround year when the company grew revenue by 25% and posted a small NPAT of $0.7m (vs $1.3m loss the year before).

In FY10/11 management is forecasting $1.6m NPAT supposed by 9 new sites and like-for-like growth (14% from FY09 to FY10). That however may be conservative given that Sept Qtr already saw NPAT ~$0.5m.

If they can achieve $2m profit (0.66cps) and 15% growth for a few more years, the current PE of ~6 is more than cheap compared to larger listed firms operating in similar fields (PRY PE=13, SHL PE=15.6).

Exit target with PE~10 or 6.5-7c.

P.S. CAJ reports tomorrow so I am sticking my neck out here a bit on expectation of a good result.

This was my post from 2011 or 3 years ago. Entry price was 3.7c. Current price 63c makes it a 1700% return.

BTW, FY11 EPS was ~$1m or 0.3cps. Share price was 3-4c around the full year report.
Today I am guessing FY14 EPS would be ~1.3-1.5c. And the share price is 63c.

So EPS growth = 4.5x while share price went up ~18x... So PE expanded from ~10x to 50x.

I never would have expected that, and still don't believe what I am seeing... and I would have sold my holding at 20x, 25x, 30x, 35x etc etc.

 

[ROE]

This was my post from 2011 or 3 years ago. Entry price was 3.7c. Current price 63c makes it a 1700% return.

BTW, FY11 EPS was ~$1m or 0.3cps. Share price was 3-4c around the full year report.
Today I am guessing FY14 EPS would be ~1.3-1.5c. And the share price is 63c.

So EPS growth = 4.5x while share price went up ~18x... So PE expanded from ~10x to 50x.

I never would have expected that, and still don't believe what I am seeing... and I would have sold my holding at 20x, 25x, 30x, 35x etc etc.

Well done time for a beer after you lock in the profit when ever it is

 

[McLovin]

This was my post from 2011 or 3 years ago. Entry price was 3.7c. Current price 63c makes it a 1700% return.

BTW, FY11 EPS was ~$1m or 0.3cps. Share price was 3-4c around the full year report.
Today I am guessing FY14 EPS would be ~1.3-1.5c. And the share price is 63c.

So EPS growth = 4.5x while share price went up ~18x... So PE expanded from ~10x to 50x.

I never would have expected that, and still don't believe what I am seeing... and I would have sold my holding at 20x, 25x, 30x, 35x etc etc.

Nice work, skc.

 

[skc]

Well done time for a beer after you lock in the profit when ever it is

Nice work, skc.

For the record... I am not holding. I sold waaaaay too early.

 

[skc]

The recent spike probably came from the Eureka interview of CAJ's CEO.

https://www.youtube.com/watch?v=yzv3fMTi3TU&feature=youtu.be

 

[leyy]

Another great result from CAJ.

I was pleased to top up when it retraced to circa 0.42 cents

this stock has yet to disappoint and is certainly a long term hold.