AHCI is an asset play and growth company rolled into one. The asset is the strong balance sheet with 92c in cash (37% of the current cap) and high free cash flow (almost 12m on an 72m adjusted cap excluding cash). The company's business is mostly recurring, with 3 to 5 year contracts, and the staffing side which has experienced pressure is increasingly becoming a smaller part of the business. Insider ownership is minimal (2%) and you do have to worry about currency, acquisitions, and a general inability to monitor this business model (business is based in the UK), and management unwilling to buy its own shares despite the free cash flow yield here equalling 16%.
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Business
Please see the 2-20-09 GOCANCUCKS97 writeup for this company (price was $1.20 then). Very little has changed (except the valuation a lot higher) beyond continued strength in homecare with continued weakness in nursing and hospital staffing, though management remains somewhat optimistic on hospital while downright grim on nursing (7% of Q1 revenue).
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here is a list of positives and negatives
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POSITIVES
41m in cash on the BS with no debt (in stering)
Big free cash flow yield (16% on a trailing basis)
Significant portion of business is recurring (3-5 year contracts, though getting granular information on this is very difficult for me at least)
Homecare showing good growth (30858-34162-35763-35903-35860 GBP from Q2-09 to Q2-10)
Acquisitions could juice growth rate (management has stated in previous calls that they expected something to happen here by 2H of 2010; if not, they will look for other methods to boost shareholder value, though there were no statements like this in the latest call) and the fact that they've talked about it for a while without pulling the trigger might be an encouraging sign that management will be price-sensitive
Cheap on a valuation basis
in theory, emphasis on homecare as opposed to hospital care could be cheaper in the long-term for those providing healthcare, so there might be a built-in incentive to beef up this business long-term for those with budgetary pressures
NEGATIVES
Based in UK - familiarity and exchange rate issues
Doesn't pay dividend or buy shares
Options pretty high (though cancellations have been high too) at about 3% as a percentage of the diluted share count for past 3 years
As currently configured, not much of an operating history (see corporate history listed below)
Pressure on Staffing part of business (getting smaller)
Fears of pricing pressures for contracts, eps as UK addresses budgetary issues
No Moat - see previous canucks posting for discussion of fragmentation of business
A few notes on the business and how AHCI ended up as a UK-based homecare company listed on the Nasdaq
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Business
113 branches with 90% coverage of UK
Customer is elderly; learning disability
Provides domiciliary care, which is personal or basic care
3.9% market share
Payors include Local Govt authorities and NHS Primary Care Trust (for HC)
Balance of sales is staffing to nursing homes and hospitals
CEO is Sandy Young; CFO is Paul Weston
Bids are 50% based on price, 50% on quality
Home Care is 84%; Establishment at 9%; Hospital at 7%
84% of revenue is recurring on 3 to 5 year agreements
Top 6 competitors have less than a 20% share
Over 2000 companies competing
Corporate History
Originated in US - mid 90s
1997 - acquired UK companies
2003 - sold US division
2004 - did a secondary and listed on NASDAQ
2005 - established 108 branches by expansion and acquisition
2007 - disposed of Allied Respiratory for 75m and paid down bank debt
2008 - focus on Homecare; entering learning disability and continuing care markets
Sales Trends
Q1 to 4 for 08, 09: HC: 27-28-29-30-31-31-34-36
Pressure has been on Nursing homes and hospital staffing (year 21-17; 16-13)
Exchange rate also played havoc - 2.05 in Q1 08 and 1.64 in latest
Sales Growth Drivers
Specialist services (continuing care and learning disabilities)
Expand branch network
Win contracts (consolidation of suppliers)
Acquisitions
Focus on quality - currently above market average - aim to be market leader
IT updates ongoing
Conclusion
I just think this is still very cheap, enough to overcome valid and important worries regarding currency, competition, the UK as an investment sector, and management's refusal to date to consider dividends or share buybacks.
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Note: the price has fluctuated in a wide range lately - 10c since I've been typing this, and $2.30 just a few days ago during the rout. There is also an unusual 8-k filed lately which could be the precusor to more interest in itself being acquired, though that is pure conjecture at this point.
Catalyst
A good acquisition or dividend/buyback which puts this cash to use.
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