Small cap series – Azure Healthcare
Azure Healthcare Limited (ASX: AZV) is a provider of healthcare communication and workflow management solutions. In a nutshell it manufactures and designs call systems for hospitals and other facilities and has enjoyed a good lick of success over the past few years. But is this changing?
On an Net Profit After Tax basis, the firm earned $894 thousand in the first half of 2015 and provided full year guidance in the range of $800 thousand to $1 million. That’s a fair decline for a firm who earned $3.9 million in Financial Year 2014! This also means that the firm in the second half will earn somewhere between a $106 thousand profit and a $94 thousand loss.
According to the firms full year guidance noted here,
“As a result of accelerated and additional $2.1 million expenditure on research, development and technical product support $0.9 million in duplicated factory and setup costs, which the Company has prudently opted to expense rather than capitalise, Azure Healthcare anticipates a Net Profit After Tax for the 12 months end 30 June 2015 in the range of $0.8-$1.0 million compared to its NPAT of $3.87 million for the previous corresponding period.”
In short, it appears that prior valuations of the firm took into account only projections on past earnings and little/no account of the expenditure requirements of the company in the future.
According to the announcement, the additional research and development expenditure is necessary as the firm transitions its operations in the United States. The upside is apparent however there is always execution risk inherent in such a move.
The information in this blog is general in nature and is not a recommendation or a solicitation to deal in any security. Please do your own research and consult a licensed financial advisor where appropriate.
Scott Shuttleworth is an analyst at Montgomery Investment Management. To invest with Montgomery domestically and globally, find out more.
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