bz1516

Paragon Care is an Australian medical device and supply company. It has enjoyed rapid growth by acquisition and has maintained double digit internal growth as well. The stock is traded on the ASX. In addition to cost synergies from its acquisitions the company primarily benefits from marketing synergies which are integral to its long term growth strategy. Their acquisition strategy is based on acquiring compatible product lines to sell through their existing sales network. They do not intend to purchase more than one company with a particular product line. They believe it is cheaper to grow the business organically as they become more competitive. There acquisitions are typically made with an earn out component. PGC has a proven track record in integrating acquisitions and has demonstrated organic growth increases in both existing and acquired businesses. The strategy works because of the large number of smaller, mainly family owned businesses available for acquisition in the Australian medical device and supplies market. Typically companies are purchased between 3x and 6x ebitda, depending on size, much lower than the company’s current enterprise/ebitda ratio. The company maintains a dividend growth policy with a target POR between 40% and 50%. Paying out a dividend while growing rapidly is indicative of their business philosophy and that their business plan is working. Here is a good description of the company: Paragon Care is a roll up of specialist medical distributors. It has exclusive distribution rights in Australia for leading brands of beds, mattresses stainless steel equipment, storage and shelving solutions, plus a range of consumable items and other capital equipment items. In September 2015 the company diversified into medical consumables via the acquisition of Western Biomedical, Designs For Vision and Meditron. Following this transaction more than 70% of its revenues will be sourced from consumable sales rather than capital items. PGC has now completed 10 acquisitions since 2009 for a total of ~$87.0m. The market for medical distributors remains disaggregated and consequently we expect there is a pipeline of future acquisition opportunities. Paragon Care has funded acquisitions with debt and equity. The company sells to a range of buyers including hospital (both public and private) as well as aged care and primary care providers. Hospitals are the largest market representing approximately 80% of revenues. Industry growth will continue to be driven by Australia’s ageing population which may continue to demand high quality healthcare services. The products distributed by Paragon have a limited lifespan and will be subject to ongoing replacement. The hospital industry is highly regulated and accreditation is dependent upon maintaining minimal standards for cleanliness – primarily for the purpose of infection control in the hospitals. Many of the products sold by Paragon are manufactured to satisfy these accreditation requirement and are therefore considered non-discretionary. The sector is well funded through a combination of Federal and State funding for hospitals, aged care services and Medicare for primary health care. The vast majority of the customer group are healthcare service providers as opposed to retail. The company is currently trading at 15x trailing 12 months eps. I am looking for EPS to increase at least 10% in FY 2017. The presentation and the two analyst reports below especially the Bell Potter report do an excellent job of explaining the company. Normally I’m wary of roll-ups, but long term this one looks like they really do have the synergies and runway to grow. I met with the CEO when I was in Australia and spent more than an hour with him. I think I got a good sense of him, very impressive, and that he will be very accessible. http://www.paragoncare.com.au/wp-content/uploads/Chairmans-Address-and-Presentation-to-Shareholders_2016-11-18.pdf http://www.paragoncare.com.au/wp-content/uploads/PGC_Argonaut-Research-Report_160808.pdf http://www.paragoncare.com.au/wp-content/uploads/PGC_Bell-Potter-Research-Report_PGC20160808.pdf

PM.v - Prism Medical Top Pick on BNN -- http://www.bnn.ca/News/2015/6/18/Top-Picks-from-Stephen-Takacsy-Savaria-Prism-Medical-and-Ag-Growth.a spx Spoke to the CEO Thursday as well. Here is a little more color on the investment thesis for Prism. The company sold its UK operation for a combination of reasons - most of the hospital beds in the UK that could use ceiling lifts, the company's main product, already had them, about 80%. At the same time the market was very competitive and as it turned out the UK did not serve as a base for expanding into the rest of Europe. Canada's 100,000 hospital beds were also saturated to about the same extent as the UK. However of the ~1,000,000 hospital beds in the US only about 10% currently have ceiling lifts. So it made sense not only to sell the UK, but to redeploy capital to the US a much larger market, but one very under penetrated as well. The premise that the US offers significant growth is supported by the rapid growth the company has enjoyed in the US in the last several years. Adjusting for the amount of the recently paid special $1.00 dividend the shares have advanced very little since I first recommended them. They still look very attractive here.

Prism Medical has an outstanding quarter extending the theme from Q4 of rapid growth in the US market, continued significant increase in quarterly earnings, and management showing conviction their plan to grow the business is working to their satisfaction, by declaring a special dividend this quarter of $1/share payable to holders in two weeks. The $1 special dividend is over 9% by itself. Its hard to articulate the reasons for growth in the future, other than they've had large growth in prior quarters in the US and they anticipate continuing the trend and of course the numbers for the last several years in the US have been very strong. The Outlook in the MDA link below explains it the best. http://www.sedar.com/GetFile.do?lang=EN&docClass=7&issuerNo=00009348&fileName=/csfsprod/data151/filin gs/02340824/00000001/C%3ASEDARFILINGSPrismMedicalLtdQ1MDA.pdf

The question then imo becomes: why did it take Mr. Goehrum more than 10 years to switch from a bad horse to a good one? Gio For full disclosure, I have met Rene and spoke to him over the phone many times, but i don't think that is a good question. It's like asking some world acclaimed actor, "why did you toil in obscurity for so many years before you became a huge success. Was there something wrong with you?"

They made that statement in the prior year's MDA, but left it out this year and went with a very positive outlook for 2015 as a whole. In addition Q1 2013 sequentially from Q4 showed a very nice increase. However Q1 2014 was consistent with the quoted comment. So i think that statement is probably counterbalanced to a good extent by the tone of this year's mda. Still its probably worth shaving off a couple of pennies from the estimate. Thanks for bringing it up.

Hey netnet. I did just what WB said. i waited for the Q4 numbers which came out last weekbefore being satisfied enough to take my position and write it up, but i respect that you want to do the same starting from now. One more thought. Before putting the cash from the sale to work, I'll bet this was not that far from being a net net. :)

Its true that G&A went up more than I like to see. However net income showed a very nice increase anyway. The only way you can get close to seeing a normalized run rate is to take the Q4 numbers and work with them. Restructuring costs in Q4 were almost $1.4mm. Adding back restructuring costs and taxes will show a very nice increase over the previous Q4 for EBT even with the increased G&A. Subtracting out taxes indicates a normalized net income for Q4 of ~$1.4mm. Annualizing that and adding in the accretion from the acquisition indicates a net income for 2015 of almost $5.5mm without any organic growth. Organic growth should get them to $6mm.

I have not looked at this company at all. Do you know what changed (the management? new generation?) so that they restructured the balance sheet and are now capital optimizer, as opposed to previously being lackadaisical? Thanks The founder and driving force is still with the company. However it looks like the number two guy left to go with the largest sub that was sold. The restructuring was more a function of them having a lot of cash after the sale in relation to the assets and market cap of the business, so they had to do something with it or just let it sit in the alternative. i think its fair to say that the restructuring was more a function of them already being a good capital optimizer rather than something new. I think the opportunity for growth in the US was an impetus for the sale so in that sense it was a reason for the reorganization that followed from the sale of the sub.

Prism Medical - a mispriced situation with growth and income Prism Medical produces and markets durable medical equipment products & services to the mobility disadvantaged in Canada and the US. Its primary products, fixed & portable ceiling lifts and mobile floor lifts are sold to the hospital, nursing home and home healthcare markets. The company was restructured in the last fiscal year ending Nov 30. They sold their UK subsidiary netting $51mm with an after tax profit of $24mm. To put this in perspective, the market cap of the company is now $48mm. The major use of the funds was for a share buy-back. Shares decreased from 8,400,000 to 4,800,000. The rest of the funds were used to clean up the balance sheet and put the company in position to grow its US market segment. The plan is to grow the US market both organically and by acquisition in its primary product lines as well as its secondary products including stair lifts, increasing its vertical integration as opportunities arise. Sales for the year ending Nov 30 were $44mm of which 68% were in the US. Gross margins increased to 46% in Q4 vs 38% in the prior year. The company has researched and determined that whatever changes take place in US healthcare policy their products will continue to enjoy a positive market environment. Since 2011 Canadian sales have essentially been flat while US sales have grown considerably since 2012, from $17mm to $29mm. The opportunity here is the market does not appear to appreciate the change in direction the company has made this past year, both from a marketing standpoint as well as financially. The recently released Q4 and annual financial results as shown in the press release look like a lot of red ink across the board from operating income to net income to eps, both for the quarter and for the year. Looking a little deeper indicates the company’s results are not only a lot better, but show it has already turned the corner. None of this would be apparent from reading the press release. The full picture emerges only from reading the full financial statement and MD&A and retracing the sale of the UK subsidiary and the stock buyback. When the one-time restructuring charges are taken out of the 2014 income statement and the large jump in income taxes normalized, the company appears to be quite profitable with an upward trajectory and in fact has a PE ratio of ~10x, LQA. The stock pays a dividend and has a 5.0% yield, however the POR is only 40% based on expected 2015 full year adjusted eps. Management gave their most positive outlook this quarter, restating their optimism that their plan for the company is proceeding, with opportunities for further organic and external growth. The shares are currently mispriced in my opinion. The mispricing is amplified by the fact management appears to communicate with its holders and the financial community only through its SEDAR filings and press releases. In such a situation there is going to be a lack of professional investors following the stock, both on the buy and sell sides. While not the most desirable situation, it does explain the lack of understanding of the current quarter’s results by mostly retail investors. The written disclosure provides enough performance and background for my comfort level. For me this is an opportunity. Management expects margins to continue to improve. The recent financial statements support that position. In addition to higher margins the recent moderate size acquisition in January is expected to be accretive to earnings for this year which ends in November. With improving margins and the accretive acquisition I expect eps to be $1.25 or 8x eps for fiscal 2015 ending in November. As the earnings already recorded in Q4 become more visible to everyone I expect the shares to advance at least 50% over coming quarters. As growth progresses over the next couple years my goal is for the shares to advance significantly further. Based on management’s track record as a capital optimizer I expect additional growth opportunities to develop along the way. Q4 results: http://web.tmxmoney.com/article.php?newsid=74334319&qm_symbol=PM Q4 financial statement: http://www.prismmedicalltd.com/cmss_files/attachmentlibrary/F2014-Consolidated-Annual-Financial-S tatements-Final.pdf Q4 MD&A: http://www.prismmedicalltd.com/cmss_files/attachmentlibrary/PML_MDA_2014_Q4_Novem ber-30_2014-Final-March-24-2015.pdf

Let's say eps increases 20% before stock based incentive compensation compensation, but after the incentive compensation costs are subtracted the eps increase is 10%. This is a regular occurrence. Do you just count it as 10% or do you think of it as 20% or some amount in between. I'm curious to know what people here think?

BRIEF-Easyhome announces new $200 million credit facility and increases loan book and sales growth targets July 28 (Reuters) - easyhome Ltd <EH.TO>: * Announces new $200 million credit facility and increases loan book and sales growth targets * Expect to achieve the metrics set for total loan book reaching $250 million a year earlier than anticipated - by the end of 2015 * Says now anticipates that the loan book will reach $180 - $190 million by the end of 2014 * Also now anticipates that the previous target of a $250 million loan book by the end of 2016 will be achieved at or before the end of 2015 * Says now targeting the loan book to grow to between $320 and $350 million by the end of 2016 * Says company has also revised its revenue growth targets for 2014 to 14% to 16% * New credit facility replaces current debt facilities,providing $115 million additional capital for growth of easyhome's consumer finance business * New credit facility, on October 4, 2018, is comprised of a $180 million term loan and a $20 million revolving operating facility * Expect to achieve the metrics we set for our total loan book reaching $250 million a year earlier than anticipated - by the end of 2015

At the same time its very difficult for a new person to get get good ideas noticed. I'm just wondering if the same person who will assume an idea is good because it gets a lot of kudos will think an idea is bad because the poster doesn't have an illustrious track record. Makes it harder for a new poster to break in.

Most of the suitable sand is in the US in several counties in southwestern Wisconsin, in an arc that extends a little bit into Minn. and Illinois. There are now API standards for frac sand, but not certain how restrictive they are. The distance shipped matters in the sense that it tends to give the advantage to the half dozen large players that now have transloading facilities all over the country. There is evidence that drillers can easily pay a lot more for frac sand than they are currently paying, so any cost increases are not a factor. The weight of the analysts following the three public sand companies believe frac sand demand is growing faster than the ability for supply to respond to it and that there is growing pressure in Wisconsin to further limit the growth of frac sand mining. This is slowing down the ability to bring new sand on stream. I think all commodity plays suffer from the issue of potential supply response, and this may or may not be better than most, but its hardly the worst. There is also the potential for international export business as fraccing takes root overseas, but that would be long term. Even though EMES and SLCA have already become multibaggers, the metrics are still very investable as the market for frac sand is now growing at an accelerating rate. The play in frac sand is the growing and greatly increased intensity of sand use per well, both because the laterals have increased in length and in the intensity of sand use per foot based on new fraccing methods pioneered by EOG and WLL. Frac sand usage will increase dramatically as these methods, that more than double sand usage per well, are adopted by most other drillers. This is happening right now and accounts for the current upsurge in sand usage and stock prices. Estimnates are frac sand usage will increase over 25% this year.

I have a couple of successful shorts, one of which is getting close to losing most of its remaining value. My question concerns what happens when it gets delisted and goes into the black hole of the pink sheets? I’ve been told there are several risks. First if it goes into the pink sheets and trades as a penny stock it will still carry a minimum margin requirement of $2.50 per share. So I would have to pay any borrow fee on the market value and margin interest as if it were $2.50 per share. This would go on as long as and until DTC removes it entirely. It may also not be able to be traded with no way to end the costs? I’ve also been told this situation could last for years if the stock goes into litigation and DTC still has not removed it. On the positive side I have also been told that if I don’t cover for a realized gain there would be no tax liability? Sounds too good to be true, but if true holding until DTC removes the stock from their system may make sense? Any help with these issues would be greatly appreciated

You can own the sand pit or the mine so to speak. You can own the plant that processes and washes the sand, and you can own the transloading facility. The transloading facility is purely logistical. The majors own all three, but the big profit comes from owning the sand pits. Victory and Athabasca clearly own or are developing the transloading facilities and Victory may own or be developing a processing plant, but that is not where I would be investing in a prospectively developing commodity play. The money is in the mine as it is in every commodity play. Victory says they have a report that says they have a fraccing sand deposit. i would discount that the same as I would discount the thousands of reports out there in Canada that claim commercial grades of every mineral you can think of. Besides why invest in hope when the best plays, EMES and SLCA offer more appreciation potential?