Ann: Appendix 4C - quarterly, page-42

Interesting theory. I see it differently - I think that there was a bit of interest with Scanmedics and then the constant drip of news. Some may have bought waiting for the updraft but it was not as pronounced as they hoped and over time it has lacked the explorer type news. Its not a hot spot of news generally in a medical supply company. The products are niche and we dont see them in our homes. If they did not have to report the 4c we would see even less.

I was surprised that there were any traders on PGC and Babymonster popped up.

If one is on HC then there may well be more.

I think its just the traders going elsewhere - I lot of stocks have been sold down to levels that may seem attractive : RMD or PGC its a difficult question. even SRX presented an alternative for a while.

I have always thought the run up was going to be a bit ragged. I dont think companies under $100million market cap can travel a straight line. I think you have to take into account that in what is still a relatively small company growth the the measurement until you get above $100million and the market can rate you on stable earnings and payout ratios.

I have created a matrix that makes sense to me:

1. Got to have near term profit horizon.
2. Then you need a catalyst - either organic growth ( which could include own product launch expectations) , acquisition.
3. Have to then get to deliver profit.
4. Have to stop the constant threat of CR - internal cash flow must drive acquisitions or growth to a degree that does not keep diluting the future.
5. You have to show a strongly growing EBITDA - Not just one year but probably 3 years.
6. You have to keep the story alive - That is probably what is lacking here. Its a hard market to make acquisitions in expectations are high we have come off a huge run on the market since 2009. Now is not the time to overpay - Overpaying destroys the story and takes years to get back on track. I don't blame management - it is what it is - a great story fed to a society that thinks 6 months is a lifetime. They have to just stick to the formula it will come in lumps rather than arrive at regular intervals. I would rather see a 40c sp than overpay.
7. I think there is a point in which it overshoots - It still has the 18/20PE but does not have the growth potential to match. So a 5c EPS can generate a $1.00 sp but the growth trajectory it not sustainable and the share is overvalued based on potential as it matures. This I think is in the next 24 months if they keep doing the rest correctly. In some ways we may be in a smaller cycle of that right now if I am correct and we see a 50% growth in EPS this year then it will be a huge ask to repeat that. Maybe with that locked in ( a 50% increase in EPS this year) for it to hold in the 50's it needed something to solidify the next growth objective - we dont have that so its tracking back.
8. Then you have to have a target of sustainability - I think its 100 million shares to generate $7 million NPAT - or 7c per share stable earnings and roughly 80% of 7c in cash flow. That's still 24 to 36 months from now and a few acquisitions to get done as well. Plus the 2 to 3 years of stable growth in earnings and moderate growth in dividends.

Thats my take on the story.