Hi Xavier ...
Here's my take on the company's expansion program. In 'the early years', MedCare initially invested capital in a 'self standing' model for their sites and realized that each of these units would require them to shell out at least $250,000 each. Ouch! That's a lot of money for a company looking to grow. I spoke to the Investor Relations department (Terry Johnston - he's now in Geneva at some conference) about this exact issue and their expansion strategy makes complete sense.
The company will be locating its sites INSIDE urologist offices! This is brilliant (In my humble opinion) for a number of reasons (some which Terry sited when I last spoke with him). Being inside urologist offices:
01) requires only a $30,000 investment per site (highly cost effective)
02) gives the patients a discreet setting to go to (as Terry put it, nobody wants to go to an "incontinence clinic" any more than they want to be seen inside an impotence clinic); thus eliminating embarrassment
03) means that infrastructure is easy to put into place
04) requires fewer employees
05) translates into higher revenues as a result of billing advantages
06) affords an immediate source of referrals
John asked whether the company's expansion would mean that earning would be eaten into. The short answer is 'NO'.
The company's current cash-on-hand means MedCare has no need to dip into its revenues for operational or expansion capital in the upcoming year. When I last spoke to their office, they anticipated opening "one site per week" in 1998 and will "comfortably meet their expansion target for 1997".
If MedCare intends to establish 50 sites next year, it means the company only needs $1.5 million to do so, and a basic operating budget of a few hundered thousand. With their current cash position (and with NO DEBT to service), MedCare can definitely afford the expansion. The 'clincher' though, is the earnings for 1998.
Because the company will NOT be siphoning cash from its revenues in order to expand, every penny MedCare brings in through sales can be directly applied to its earnings. As such, to meet a target of .60 - .65/share in 1998 can be conservatively achieved.
In conclusion, MedCare has more than enough cash to grow; has no debt to worry about; has no forseeable competition; and is in a massive marketplace. |
