Ann: Annual Report to shareholders, page-5

I've taken a closer look at this one today. While I can't say it is a screaming buy, I think there is some real potential here, and you just have to look at the chart to see how quickly this one can move with a tight register when good news comes through.

Some thoughts in no real order of the last financial year:

Decent revenue growth at 17%. $1m was from grants which I would normally ignore, but another $1.5m grant has been secured so I am happy to factor it in.

NPAT is all over the place with impairments and D&A over the last couple of years. I'm not even going to try with that. EBITDA fell from $2.1m to $1.5m though, which although is worrying at first glance, is almost completely attributable to the US segment which had a significant one off gain of $1m last year. Factoring that in, underlying EBITDA looks ok.

I tend to favour OCF/FCF with small caps though, and these are interesting. OCF fell from $1.8m to $560k. If it wasn't for the grant it would have been negative OCF last year. This was due to flat receipts at $19m but a large increase in payments to suppliers and employees. I think the receipts should be ok given the increasing revenue that has been booked should flow through as they are paid.

Capex also had a big rise to roughly $1m from $379k. With the poor OCF this means that a strong FCF in the 14 FY of $1.5m was now ($500k). It seems like most of this cost has gone into R&D and expanding the current product range, so hopefully management can squeeze the increase in working capital this financial year.

Even acknowledging the underwhelming performance in FY15, MDG is still pretty cheap by EBITDA metrics. EV/EBITDA is currently 4 times. I'd be comfortable with MDG trading on double that. The drop in OCF/FCF is concerning for measuring those ratios, but I believe we may see both of those numbers bounce back this year. They were inflated by the one-off gains for Consova in the first place, and the company appears to have invested heavily for growth with the large increase in capex.

I don't hold, it is very hard to get a position in this one. Still keeping a keen eye on it, and favour it over others in the space.