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MDY opportunity?



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By Dougie

Posted: Wednesday Jan 21 6:45:24PM 2004

I bought some after your original post and I bought alot more on the morning after the last news release. Great call

By Tommy V

Posted: Wednesday Jan 21 4:08:24PM 2004

I really appreciate the post, I was meaning to take a look at this one but I got quite busy with exams and then I forgot about it. That was quite a good observation though.

By stocklad

Posted: Tuesday Jan 13 7:02:40PM 2004

Just a quick follow up on this opportunity. Just released Q1 undiluted EPS=.030/sh, which is up from the previous Quarter of .015/sh, which in turn was an improvement from the prior Quarter of .010/sh. It appears from this that earnings are now catching up to the four year revenue growth of an average of 50%+ per year. Latest price of .80/sh now seems rather low and would appear to be a magnificent entry point, if still available.

By stocklad

Posted: Sunday Nov 30 9:15:30AM 2003

Re: Medisystem Technologies (MDY, TSXV) I find this company quite interesting and think there might be a rather unique opportunity here. The opportunity is based on the assumption that the number of shares outstanding will drop considerably (and therefore EPS will rise significantly) if a certain milestone is not met. Before I rant on, let me first say that we want to make sure that the company is solid. In this regard, it should be noted that, over the last 4 years, revenues have been growing at a rate of approximately 54% per year (compounded annual growth rate = CAGR) and earnings by approx 41% CAGR. Debt/Equity is down by about half over the past year to approximately .47. At a price of about $.60 per share and trailing 12 months EPS of $.043, the current P/E is about 14x. (Note: This stock is very illiquid. Fridayís closing bid/ask was $.45/$.62 and the last trade was I think at $.50. I would expect this to go up after Fridayís earnings announcement.) Ok, hereís the rant. I managed to get some interesting info from 2003 financial information (SEDAR) and drew a few conclusions of my own. Itís a bit of a back of an envelope calculation approach, but what the heck. MDY did an IPO a few years back and over 13 million of the initial proponentís shares were placed in escrow pending the achievement of certain cash flow milestones, cash flow apparently being defined in the escrow agreement as net income after taxes plus non-cash items such as depreciation and amortization. All but 4,344,444 of the shares have been released from escrow and these 4,344,444 remaining shares will be returned to the treasury at the end of FY 2004 (31 Aug 04) unless the company generates $2,000,000 in cash flow as reported in the 2004 annual financial statements. FYI, 2003 cash flow was net earnings of $803,035 + amortization of $710,529 = $1,513,564, so the company has a little way to go yet. For reporting purposes, the company includes the 4,344,444 shares in its fully diluted per share net income calculation, but if the cash flow milestone is not reached, the proponents will permanently lose the 4,344,444 shares and the fully diluted number of shares will drop from 18,706,950 to 14,362,506. Letís look at what happens under the 2 scenarios (scenario 1 assumes that they meet their milestone and scenario 2 assumes that they do not.) Last 4 Quarters Quarter Nov 02 Feb03 May 03 Aug 03 Scenario #1Öas reported, which assumes they will achieve 2004 targeted cash flow Earn- Ings 181,385 154,988 179,301 287,361 Divided by # of shares 18,706,950 = EPS $.010 $.008 $.010 $.015 (annual = $.043) Scenario #2Öif they donít achieve their targeted $2,000,000 cash flow in FY2004 Earn- ings 181,385 154,988 179,301 287,361 Divided by #shares 14,362,506 =EPS $.013 $.011 $.012 $.020 (annual = $.056) So, you ask why bother with all of this? Well, if the company doesnít meet its target, you have an instant EPS increase of 30% because of the fewer number of outstanding shares. (Add to this whatever organic EPS increase they do happen to achieve in 2004.) If the company does meet itís target, EPS will also increase because the company will have to grow its earnings by the $2,000,000 target less current earnings of $803,035 less current amortization of $710,529 (assuming that amortization doesnít change for 2004) which equals $486,436. At 18,706,950 shares outstanding, this equates to an EPS increase of $.026 per share or approx 60%. By the way, this makes for a forward PE of just 8.7x. Either way you win, assuming that the company continues to do well. Given the growth rates noted above, that possibility seems likely and I would imagine that the major owners will do everything possible to see that the company achieves the milestone. By the way, I should say that I bought some shares in October 03 for approx. $.76. Comments?

By stocklad

Posted: Sunday Nov 30 9:21:25AM 2003

I had made a slight wording error, but have corrected it via the edit function. Nice function.

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