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Investment Q&A

Not investment advice or solicitation to buy/sell securities. Do your own due diligence and/or consult an advisor.

Q: Just a follow-up to the information I posted on Sunday: TDSI Action notes report yesterday, revised their target price from the $10 to $5.50 and calling the stock a HOLD. The analyst (only one) states that the 00740 and 00810 codes are being broken into 5 separate codes. "Although the changes include a mixture of rate cuts and increases, we believe the net effect could be an 8.5% reduction in CRH's realized rates."
"The underlying ASSUMPTION is that the proposed rules are implemented as is on January 1 2018".
He also believes the changes will hamper CRH's M&A activity.
Let's hope this analyst ( Lennox Gibbs) has decided to be ultra conservative after being comfortable on Friday.
Clarence
Read Answer Asked by Clarence on July 19, 2017
Q: Is it possible that CRH sees competition to their roll up plan so they opt to buy controlling interest in a number of clinics to ensure a good market share and then over time pick up the NCI as the NCI partners sell out or move on. It would be nice to know what their game plan is. When did they make the switch from buying the complete business to just buying controlling interest?

Thank You
Clarence
Read Answer Asked by Clarence on July 18, 2017
Q: hi folks:

I am curious as to your understanding of the passage below
(excerpted from stockhouse BB's)

is there a better than even chance that CRH is yet another company being brought to earth by 'creative' accounting or is everything simply been overblown?

thanks in advance


CRH'S CONFUSING ACCOUNTING? Help needed to understand this.

CRH has a unique acquisition model in that the company tends to purchase portions of businesses (typically 51%, sometimes more), recording 100% of the acquired business revenues and earnings on its consolidated financial statements with adjustments made for specific amounts attributable to shareholders and attributable to non-controlling interests. This acquisition practice, while compliant with GAAP and sound from an accounting standpoint, requires that investors pay more attention to the details within the company's financials to get a complete picture of what is going on.

The company's most recent financial statements show a quarterly net and comprehensive income increase of 9% year over year from $3.03 million in Q1 2016 to $3.3 million in Q1 2017. The breakdown of these earnings is where investors need to pay attention.

In Q1 2016, CRH reported that net income attributable to shareholders was $2.96 million (or 97.7% of total earnings).

In Q1 2017, CRH reported that net income attributable to shareholders was $1.54 million (or only 46.7% of total earnings).

Because of the company's acquisition model, stock-based compensation, and increases in finance-related costs, CRH is now paying out more than half of its earnings to non-controlling interests. This is a trend which has been ongoing for the past year with the shareholders portion of earnings consistently declining over time.

Looking at earnings per share (EPS), we can see that earnings have significantly underperformed expectations ($0.02 EPS attributable to shareholders compared to $0.07 EPS expected.

Consider this note from the most recent financial statements: The company has also stated its intention to acquire or develop additional GI anesthesia businesses. In the future, it may be necessary for the Company to raise additional funds for the continuing development of its business plan, including additional acquisitions.

Insiders selling large amounts of stock of late CRH directors David Johnson and Edward Wright sold a combined $5.71 million of stock at average prices between $7.45 and $11.05 in March, which amounts to nearly 1% of CRHs total float. As I have reported previously, insider selling is generally not an issue in large and very liquid equities with compensation structures reliant on stock options. In growth-related businesses, large stock option redemptions can be commonplace and may largely be ignored by the financial markets for those reasons. That said, any time nearly 1% of a company's stock is sold by insiders, questions undoubtedly come to mind.

Bottom line I am skeptical about CRHs growth strategy from the standpoint of a shareholder. It appears to me that the substantial dilution effect resulting from this growth strategy is one which will not benefit shareholders in the long run. My skepticism also extends to the recent large liquidation of stock by two company directors, making me more uneasy about this company's long-term prospects.

Read Answer Asked by Robert on July 17, 2017
Q: In answer to Febin's question on Friday you said that "The stock reaction (crh) is likely appropriate, though, putting its risk/reward in line: thus we would do nothing here". How did you determine the risk/reward of Crh? What metrics/rational did you apply? I'm currently down 48% on a 1/2 position and appreciate your response. Thankyou.
Read Answer Asked by Brad on July 17, 2017
Q: Hi folks:

My average cost for this is in the 7 dollar range. I held it up to 12 and now its going to south to fast for my liking. I bought this for a 3 to 5 year hold. A 27 percent decline in one day certainly can put investors in panic mode, and I need your humble professional opinion with what to do with this one. Is patience the key here or should I move the remaining capital to a knight or a Savaria for example.

Thank you for your professional advice.

Read Answer Asked by Mark on July 17, 2017
Q: CRH Medical dropped >28% on Friday. I see they repaid their loan to Crown Capital as planned and have taken out a new credit facility (to 2020), reducing their interest expenses from 12% to 2.5% and providing cheaper capital for a future acquisition (3.5%), http://investors.crhsystem.com/1881-2/.

This would seem to be a big positive - quite apart from the recent re-imbursement issue which doesn't seem to realistically reflect the actual impact of any changes (i.e. is more benign than the market has anticipated).

So why the 28% drop? I got in at $4.47 - your advice, please? I'm tempted to buy more but I am/ should be an income investor (ha!).

Thanks as always,
Heather
Read Answer Asked by Heather on July 17, 2017
Q: TD Waterhouse Action Notes Summary Report dated July 7 2017 about "Questions regarding the sustainability of CRH's reimbursement rates have contributed to a two month slide in CRH's stock."
Here's the meat of it.
" We expect a relatively benign outcome to the 2018 fee schedule, partly because of CRH's limited exposure to CMS funding. Our sensitivity analysis indicates that a 5% cut in the Medicare reimbursement fee could cost CRH ~1% in adjusted EBITDA. ....
CRH has limited exposure to MEDICARE- We expect CRH's operating performance to be largely insulated from CMS for two reasons. First, Medicare only represents 10 to 15 % of CRH's revenues. Second, CRH's dominant payers (the private insurers) employ different reimbursement protocols from Medicare. We estimate that commercial payers reimburse the 00810 code at 3X-4X the rate of government payers.
TD Investment Conclusion
We are maintaining our buy rating but reducing our target price to $10.50 (was $12).
Our rating is based on three considerations: 1) leadership in a defensive, growing segment of the U.S. healthcare services market: 2) high margin cash flow streams and: 3) expansion opportunities within CRH's core anesthesiology market.
Hope this soothes a bit!
Read Answer Asked by Clarence on July 15, 2017
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