My Investment Journey

[TPI]

Re. PHG, I had a brief look at this a couple of months ago, and from what I can recall now they operated a lot of smaller sized hospitals, many in regional areas (except one new and larger one in the Gold Coast I think), with generally lower bed occupancy and utilisation, each small hospital was also planned to have it's own general manager, and some of their general surgical focused hospitals were not doing as well due to many cases in these regional areas being day cases and being more suited to day procedure units with bigger operations being better suited to larger and better resourced hospitals in general (I think this line of thinking may have shifted their focus to day surgeries from what I can remember reading). Although the same tailwinds are present as per other private hospital operators, I didn't feel they had the same potential and scale benefits as RHC or HSO. I got lucky and bought into HSO at the absolute low point on listing of $2.09 (listing price was $2.10 I think) so I decided to add to this rather than add PHG. Though it's not inconceivable that they could be gobbled up by a larger operator like RHC or HSO down the track.

 

[KnowThePast]

Re. PHG, I had a brief look at this a couple of months ago, and from what I can recall now they operated a lot of smaller sized hospitals, many in regional areas (except one new and larger one in the Gold Coast I think), with generally lower bed occupancy and utilisation, each small hospital was also planned to have it's own general manager, and some of their general surgical focused hospitals were not doing as well due to many cases in these regional areas being day cases and being more suited to day procedure units with bigger operations being better suited to larger and better resourced hospitals in general (I think this line of thinking may have shifted their focus to day surgeries from what I can remember reading). Although the same tailwinds are present as per other private hospital operators, I didn't feel they had the same potential and scale benefits as RHC or HSO. I got lucky and bought into HSO at the absolute low point on listing of $2.09 (listing price was $2.10 I think) so I decided to add to this rather than add PHG. Though it's not inconceivable that they could be gobbled up by a larger operator like RHC or HSO down the track.

Thanks for the detailed feedback, TPI.

I agree with you that potential profitability of PHG's facilities is second rate to some of the bigger players. Nevertheless, I think it it still a very profitable business in the long term, just not as great as what some others are achieving.

As for some holspitals underperforming - certainly. They are on an acquisition path, some will work out, some won't. It will not be a smooth ride all the way.

Other than a radical healthcare reform in the country, the business provides revenue that is more stable than average and normally at quite good margins.

Entering the market via a niche area and staying under the radar, rather than taking on big players head on is a good way to do it. Once they grow, I wouldn't be surprised to see them compete more directly with the gorillas.

Thanks for the post again, TPI. You've highlighted a risk that their niche may not compare to other companies, even if they are all hospital operators. We'll see how it plays out. As I mentioned in my first post, I still see this as a higher risk, higher reward strategy. As such, I've used my normal, small position size for it.

 

[Ves]

Don't know much about PHG.... and granted that we may have different time-frames and investing methods you may not be interested in the questions I would ask, but here they are:

How reliant on their operations is their relationship / contracts with private health insurers? (For instance, HSO & RHC derive a very large proportion of their revenue & competitive positions from their strong bargaining power over the insurers - ie. they own infrastructure in key areas). What contracts are already in place?

How essential is their infrastructure? Where are the nearest competing hospitals? Do the private health insurers give their clients a choice of other alternatives?

What potential is there for their key staff (surgeons / doctors) to bargain higher wages and cause margin pressure? It is often said that doctors want to work for the places with the best facilities etc. This is especially relevant in regional areas. See next question as they are related to an extent.

What is the capex profile like going-forward? Is it lumpy or fairly smooth? How accurate do you think their depreciation calculations are? How does capex (or depreciation) / revenue (or OCF) compare to HSO / RHC?

What is the break-even occupancy level for their beds? I think I read it was 40%. What is the average occupancy level over the longer-term? How would this react to further brownfield expansion?

As you have already mentioned legislation is a risk, and always will be, but you may also want to consider the risk of litigation and how this would effect the company (especially if they have limited facilities vs the bigger players). Hospitals can be sued for negligence if they take on patients and operate in areas outside of their specialisation / capabilities (sounds like a no-brainer, but you would be surprised what can happen).

I find that in light of the Medibank Private IPO there is an interesting dynamic between the private hospital operators and private health insurers... they are both pushing for margin expansion, but they cannot both win at the same time.

 

[KnowThePast]

Don't know much about PHG.... and granted that we may have different time-frames and investing methods you may not be interested in the questions I would ask, but here they are:

How reliant on their operations is their relationship / contracts with private health insurers? (For instance, HSO & RHC derive a very large proportion of their revenue & competitive positions from their strong bargaining power over the insurers - ie. they own infrastructure in key areas). What contracts are already in place?

How essential is their infrastructure? Where are the nearest competing hospitals? Do the private health insurers give their clients a choice of other alternatives?

What potential is there for their key staff (surgeons / doctors) to bargain higher wages and cause margin pressure? It is often said that doctors want to work for the places with the best facilities etc. This is especially relevant in regional areas. See next question as they are related to an extent.

What is the capex profile like going-forward? Is it lumpy or fairly smooth? How accurate do you think their depreciation calculations are? How does capex (or depreciation) / revenue (or OCF) compare to HSO / RHC?

What is the break-even occupancy level for their beds? I think I read it was 40%. What is the average occupancy level over the longer-term? How would this react to further brownfield expansion?

As you have already mentioned legislation is a risk, and always will be, but you may also want to consider the risk of litigation and how this would effect the company (especially if they have limited facilities vs the bigger players). Hospitals can be sued for negligence if they take on patients and operate in areas outside of their specialisation / capabilities (sounds like a no-brainer, but you would be surprised what can happen).

I find that in light of the Medibank Private IPO there is an interesting dynamic between the private hospital operators and private health insurers... they are both pushing for margin expansion, but they cannot both win at the same time.

Hi Ves,

Thank you very much for the feedback and questions, very astute.

I don't go into as much detail as you - my investment criteria and timescales are different. I take of an "average out" approach. The number of stocks I invest in, it's not really feasibly to be thourough on each one. So, take my opinion with a grain of salt.

Relationship with insurers and essential infrastructure - I suspect they don't have strong bargaining power yet, but it will improve with size. Given that their facilities are either in regional areas, or are for specialized services, it is unlikely there is much competition nearby. The fact that the market is too small to attract much competition is not good, but on the flipside, it improves PHG's competitive position.

They mention in the report that private health cover is quite high (47%). This is possibly a risk if the economy deteriorates sharply and less people opt in for it.


Staff - No doubt, it will be more difficult to source medical staff in regional areas. There are, however, two categories of people that would fit. Those that prefer the lifestyle, and those who recently arrived to the country. I believe certain occupations, such as doctors, are allowed to come to Australia on a condition that they spend the first 2-3 years working in a rural area. While this would create higher turnover, it will also increase the number of available recruits, improving bargaining power in wages negotiation.


Capex/Depreciation - Their depreciation expense has been relatively constant over the last 6 years, ranging between $700k-$1.1m. Capex has grown up to $3.5m, but most of it would be for growth, not maintenance. I don't know the industry well enough to say whether their depreciation allowance is appropriate.

Depreciation/Revenue is 1.5%, which is much lower than RHC and HSO (3.5-4%). So, yes, they are potentially understating it based on these numbers. It does look like a low capex business in all 3 cases, which is a plus.

Also, the fact that operate in niche areas, with mainly single purpose facilities, I think it is quite plausible that their capex really is substantially less than all in one hospitals. Their 3 mains areas of focus are - surgery, rehabiliation and mental health. Rehabilitation and mental health in particular, I would imagine have very litle capex requirements.


Occupancy - Each facility would have its own break even level, and as they are scaling up, this number will change quickly. Also, it also not the only measure. They also have a lot of day procedures that don't require a hospital stay.


Insurance - yes, it is a risk. Margin of safety, etc...

 

[KnowThePast]

Bought CGR, 5909 @ $0.22

A quick, thoughtless buy on my part. They meet my statistical filter and have been on my watchlist for a while. I saw a very good update from them yesterday, decided to get in, then do some more research later.

 

[galumay]

Bought CGR, 5909 @ $0.22

A quick, thoughtless buy on my part. They meet my statistical filter and have been on my watchlist for a while. I saw a very good update from them yesterday, decided to get in, then do some more research later.

On a quick scan, sounds like an interesting little business!

 

[robusta]

On a quick scan, sounds like an interesting little business!

Yes, very interesting, I just added it to my hot list.

 

[tinhat]

This came up in an end of week scan for me. I know nothing about this mob. Is there any reason for the lumpy jump in revenue in their result? Have they been working on a big contract (that may only be short or medium term)?

 

[Triathlete]

This came up in an end of week scan for me. I know nothing about this mob. Is there any reason for the lumpy jump in revenue in their result? Have they been working on a big contract (that may only be short or medium term)?

Introduction
CML Group Limited (CGR, formerly Careers Multilist Limited) is a franchised business operating in recruitment industry, payroll management and migration services. CGR operates in Australia and has over 52 recruitment franchise. Services offered by CGR include, payroll solutions, financial services and employment related services.

for more, see https://www.stockdoctor.com.au/company/CGR

PS (Moderator's comment)
If you don't have access to advisory sites, such as Stockdoctor, Morningstar, Phat Prophets, ... there is a free and rather comprehensive site that allows you to form your own opinion. It's Yahoo: https://au.finance.yahoo.com/q/ks?s=CGR.AX

 

[pixel]

Introduction
CML Group Limited (CGR, formerly Careers Multilist Limited) is a franchised business operating in recruitment industry, payroll management and migration services. CGR operates in Australia and has over 52 recruitment franchise. Services offered by CGR include, payroll solutions, financial services and employment related services.

[...]

Hi trathlete,

While your reply is appreciated, the setup and layout makes it appear to be lifted from another site, thus subject to copyright. In cases like that, please be aware of our responsibilities wrt the Law and provide a link to the source, rather than pasting without reference.

Entire articles are not permitted to be reproduced in full on ASF as it is in violation of copyright law. The accepted standard is 10% or, in the case of very short articles, a couple of paragraphs at most. Please note that any content reproduced from other websites must be accompanied by a link to the original source.
You can find our official policy on copyright here: https://www.aussiestockforums.com/for...ad.php?t=10373

 

[Triathlete]

Hi trathlete,

While your reply is appreciated, the setup and layout makes it appear to be lifted from another site, thus subject to copyright. In cases like that, please be aware of our responsibilities wrt the Law and provide a link to the source, rather than pasting without reference.

Entire articles are not permitted to be reproduced in full on ASF as it is in violation of copyright law. The accepted standard is 10% or, in the case of very short articles, a couple of paragraphs at most. Please note that any content reproduced from other websites must be accompanied by a link to the original source.
You can find our official policy on copyright here: https://www.aussiestockforums.com/for...ad.php?t=10373

Thanks PIXEL,
I did not think of that....I will remember that in future.!!

 

[KnowThePast]

CGR is a company that used to be in recruitment, but is now making a bigger push into payroll management and commercial factoring. Some sites still list recruitment as their main operation, which is no longer the case.
Both finance and payroll segments provide about the same amount of revenue and profit. Both are also very capital intensive, the company intends to use debt and equity markets as a source of funds and try to not rely on leverage too much.

Payroll – they make money by employing people on behalf of their clients. While the worker works at the client site, they handle payroll, administration, insurance, etc. They also have the means to organise foreign worker on 457 visas.

Finance – factoring, or receivables finance, is buying of accounts receivables from companies. CML buys up to 80% of client’s receivables, then collects the balance 30-60 days later. The key here is to assess the risk of those receivables and not to overpay for them. While I do not know the industry well enough, I would assume the rate of default is lower here than consumer personal loans. Trade credit insurance is also in place against all their receivables.

Both business lines should benefit greatly from economies of scale. The finance one is where growth is mainly expected from.

A few other debt related companies were able to negotiate wholesale non-recourse loans from banks once they reached certain size. The same should happen here eventually and will greatly reduce the cost of capital. I was pleasantly surprised to read about exactly this plan in their latest report.

The price is very modest considering their growth plan. I do not think it factors in neither the benefits of scale that will come in, nor the reduction in cost of capital in the future. A 0.5% reduction in interest will have a very large effect on their current profit.

 

[galumay]

The price is very modest considering their growth plan. I do not think it factors in neither the benefits of scale that will come in, nor the reduction in cost of capital in the future. A 0.5% reduction in interest will have a very large effect on their current profit.

The thing that struck me when i dug a bit deeper was their operating margin was just about non-existent, this should also improve greatly with scaling, especially as the other metrics look pretty good.

I kept it on my watchlist, but there are other more attractive opportunities with my strategy. Good luck with this one KTP, i think it could be a goer!

 

[KnowThePast]

Topped up on TCN, 6000 @ 0.091.

 

[KnowThePast]

Monthly update, an increase of $484 (1.3%) for the month.

 

[KnowThePast]

Bought MCP, 4000 @ $1.18
Sold MCP, 4000 @ $1.20

I was expecting a bigger price increase after a good (considering the price) earnings guidance. Hasn't quite happened, but I squeezed out a $20 profit.

 

[KnowThePast]

Sold CDA, 1677 @ $0.83, for a $141 (10.87%) profit.

Bought MWR, 1035 @ $1.27.

 

[KnowThePast]

Sold my parcel of SBB for $0.059, at a loss of $292 (24%).

The more I followed it, the less I liked it. I then further considered how big the upside can be and decided that there are other opportunities with similar upside, but less risk.

 

[galumay]

Sold my parcel of SBB for $0.059, at a loss of $292 (24%).

Will be interesting to see how it plays out, its a good one to chalk down to experience anyway. I think trying to price these sort of speccy investments is quite a challenge.

Sometimes I think we are all guilty of letting the potential blind us to the consequence of the risk.

I remember my dad always used to say, "dont worry about the risk of something happening, work out whether you can live with the consequence if it happens." It applies to buying shares as much as drug trafficking.

 

[KnowThePast]

Will be interesting to see how it plays out, its a good one to chalk down to experience anyway. I think trying to price these sort of speccy investments is quite a challenge.

Sometimes I think we are all guilty of letting the potential blind us to the consequence of the risk.

I remember my dad always used to say, "dont worry about the risk of something happening, work out whether you can live with the consequence if it happens." It applies to buying shares as much as drug trafficking.

Yep, definitely will continue watching this one with interest.

I don't think buying it was a mistake. I should have sold, however, when they didn't pay, or explain the dividend in September. I took a few months to think it over instead.

If at the end of the month they announce a large dividend, well, I'll be an idiot twice then.

But I am 90% confident there will be no dividend, as cash will be needed for further investment in stores/refurbishments.