www.appliedproductivity.com
Here Elliott refers to Elliott Noss,the CEO of Tucows. As most people know Tucows ia a Canadian technology company that I have spent a lot of time on.And it has just reported it's fourth quarter and annual results.The annual results were quite good as Elliott has done a good job here but the report itself is quite amateurish.Tucows is now a billion dollar company and an annual report that says earnings come from domaine names and Ting a small mobile telco is ludicrous.This could actually hurt the stock price if investors
were not able to see that the company is a bonafied software company that is actually doing very well.It is true that 2019 e.p.s came down from e.p.s of 2018 but it's results are ahead of almost all Canadian technology companies.It seems to be very well managed.For example, it's adjusted EBITDA exceeds both Kinaxis and Shopify.
The Quarterly Report
This quarterly report also has annual results but all the Tucows' quarterly reports have little useful information in them.And they talk about making revenues and profits from domaine names and a small mobile company called Ting.They apparently made a small acquisition in another company that sells domaine names called Enom.If this was true then they would likely be as profitable as Go Daddy and have the same market capitalization.The quarterly reports cover the real software business that has been so successful.
However the figures in the report as well as it's performance is quite impressive.Elliott must work hard to earn his impressive salary.Yet most of the Q3 figures are down from the third quarter of 2017 except for adjusted EBITDA.Revenues are down 6%,net income is down 60% and cash flow is down 24%.This is not a good trend and means that some of that abundant cash flow should be spent on new initiatives.That aside, the annual figures show better.
Conclusion
My last blog on Workathon on Tucows dated (20/02/2017) stated that although Tucows was performing well it did need to show that it was more sophisticated than selling domaine names.The quarterly reports cover up the real business;it manages a number of software companies and makes revenues from online advertising(as with Yellow Pages).It is the belief of this blog that it's P/E ratio and the stock price would come down if this was not true.Furthermore mentioning Ting as a major activity is also not conducive to a high P/E ratio.So in conclusion, their earnings are good but their description of activities performed must be improved or Elliott must go.This is good for the long term valuation of Tucows.This blog feels that this should be mentioned at the next A.G.M.(Annual General Meeting) and be the basis of a challenge against Elliott as chairman.
https://www.fidelity.com/
Medical Facilities (DR) is a health-care company with an unique approach that has grown rapidly over the last 2 years.It was $10 per share a year ago and has grown to it's present price of $17.50 per share.It has a market capitalization of about $550 million.And it has a very interesting and unique business model that should allow easily for future growth.To that end, Medical Facilities just had a good third quarter. All DR facilities are located in U.S.A.
Third Quarter Results
Total revenues were up 17% over 2017 to $104 million with organic growth of 7.5% Adjusted EBITDA kept pace with a 17% increase.While income from operations was $17 million ahead by 33% over Q3 2017.Medical Facilities has an unique niche as it does surgical work for hospitals, health-care facilities,doctors and insurance companies.Bigger organizations out-source some of their work to Medical FacilitiesBecause on the one hand it does surgical operations faster than many larger hospitals.On the other hand,it does surgical operations more cheaply and in some cases more complex than what smaller hospitals can do.In order to do this Medical Facilities has to and does have a very lean and competent operation.
Nine Month Results
Revenues increased by 13% to $308 million.Income from operations increased 16% to $49 million.But the big change was the increase in e.p.s. from a loss of $.11 to a gain of $.07 for an increase of 164% for 3 months.And for 9 months e.p.s grew from $.33 to $.39 per share.
Capital Structure
Medical Facilities has a market capitalization of $537 million but has only 31 million shares outstanding.It is a very tightly held stock; approximately 30% -50% of it's share are held by insiders.Consequently in 2017 net income before minority interests were $60 million but $30 million was paid out to minority interests.Net income declared was only $30 million.It is not clear what effect this has on the stock price;it does lower the P/E ratio but it looks like investors buy on the P/E before minority interests are paid.For Qtrade shows the P/E at 18 and Scotiatrade shows it at 25 but if net income is taken before the minority interests the P/E ratio should only be about 8 times earnings.However minority interests certainly do reduce the free cash flow as their net income is taken off the top.This blog believes that it is incumbent on management to lower the minority interest percentage to 33% over time.
Outlook for 2019
Medical Facilities will probably have steady growth in revenues and earnings in 2019 as it has a special niche that will only get bigger.However DR needs more investment to put in new facilities.This will require a new secondary equity issue.And the stock price will move ahead slowly as a good chunk of earnings will continue to go to the minority interests.Management needs to ensure that enough new shares in any new secondary issue go to non-insiders so that the minority interests get a reduced share of their controlling interest.If the return on equity on the new investment matches the existing return or exceeds it then the stock price will rise and insider's share will gradually drop.Look for gradual changes in the capital structure and the share price to move up to $20 with increased earnings. https://www.zacks.com/ https://www.fool.com/
