ITD

[galumay]

Another strong year in 2016/17 for ITD, share price has not yet reflected transformation in business and is compelling value IMO, I have an Intrinsic value range of between 50c-$1. I will look to accumulate some more of these at current prices. Debt is quite low

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[galumay]

I was still deciding whether or not to add to my holding in ITD when they went into a trading halt this week! So ITD announced to the market today that they had sold off about 35% of the business,

ITL Health Group (ASX: ITD), an innovative global medical technology company, is pleased to announce the sale of its Australian Custom Pack business unit, part of the ITL Healthcare division, to Nasdaq-listed multi-national Merit Medical Systems, Inc. (“Merit”) for $14.4m (“Sale”). The Sale was signed and completed on 2nd October 2017.
The Sale involves the transfer of all issued shares in ITL Healthcare Pty Ltd to a subsidiary of Merit and includes the Melbourne manufacturing facilities, clean rooms and steriliser, and ITL Healthcare’s range of custom procedure packs, drapes and gowns.
ITL will retain a strong presence in Australia, including an extensive sales and distribution network across the country. ITL will retain ownership of business units that manufacture and sell the following products, that together contributed $8.9m in the last financial year:.

I am trying to get my head around the likely impact, i see EPS being about 30% less post the sale, all things being much the same, in reality there is probably some organic growth that will lessen that impact.

Being higher margin business that is retained maybe the FCF wont suffer as bigger drop, so throwing all those numbers in a bucket and stirring them up, my IV range drops to 30-50c - with the margin of safety knob turned up a bit because there are too many unknowns.

I would also like to know what their plans for the $14.4m are, hopefully first priority is payout the $5m debt, I would prefer them to put the rest to good use, but if they cant make money with it then a buyback, and if they are really no good at capital management then I guess a special divvy might be on the cards

[galumay]

So the release of the HY to December 17 report gives a bit clearer picture of the progress of ITD since the sale of the Australian Products division, its a bit of a worry because despite the supposed higher margins in the remaining business, a small loss in continuing operations has been recorded. The report makes some explanation of it, but its not all that convincing! I pedicted a drop in EPS of around30% post divestment, but its a lot more than that so far. It probably missed earnings by about $1m at least from my prediction. (hard when its only a HY result so lots of extrapolation).

The My Health Test division increased its losses by over $500k and Biomedical missed revenue by over $1m which impacted earnings by a similar amount.

The other question I posed was what might be done with the $14.7m from the sale, it looks like the breakdown is the sale yielded $9.8 after costs (how did it cost $4.9m??) $8.6m after tax. Cash on hand has increased by $1.8m, debt reduced by $1m, share buybacks $6.8m.

In summary the sale proceeds increased cash, paid down debt and bought back 13% of issued shares.

I am still struggling with the actual breakdown, from the report summary,

The profit on the sale of the Custom Procedure Pack business after tax was $8.6m. Profit before tax was $9.8m including costs to sell the business.

Yet in the Statement of Cash Flows,

Proceeds from disposal of subsidiary, net of costs to dispose    ----   13,884,000

As always, the devil is in the detail, the missing $4.9m was the costs of sale plus the assets that went off the books when the sale was made, so that has to be deducted from the total received for the sale. Once again I am reminded that the detail is often in the notes to the financial statements.





Late last night I had some more thoughts about ITD and realised the question in this case was not whether to buy more, but whether to get out, i made a quick note in bed,

Second level thinking, invert, invert.

The real question is should I sell ITD, not whether I should buy more.

Things to watch, anchoring.

The ongoing business made a loss for the HY, even if it makes a profit for the 2 na half its going to be a very low number. I think the SP will drop more before it recovers.

So sold out this morning, for an average of 0.324 - and I was lucky to get that. Average purchase price was 0.34 so a small loss was taken. I think its still a business to watch and if it falls to the 20c range and returns to profitability then I may re enter.