Lizard
23-07-2012, 10:20 PM
Corum Group has had a small amount of coverage on the Profitable Micro-caps thread. However, recently it has passed the $20m market cap limit that the thread was set up to cover, so it seems timely to give it a thread of its own.
Appearing to have listed in the late 1990's as a homeopathic medicine company named "Medicine Quantale" (MQL), this business evolved through acquisition and divestments in 1999-2001 to become a software business. In particular, they chose to specialise in the pharmacy space with "Retail Solutions and Electronic Payments" systems. At this point, it was known as "Cosmos Ltd (COO) after one of their acquisitions of the same name. Unfortunately, this process occurred at the time of the tech wreck, so Cosmos never got the chance to really establish themselves, with the share price plummeting and undermining attempts to inject new capital.
In 2002, they produced revenues of $14.8m (up 123% on pcp), but a loss of $17.6m, including $11m of impairments. Market cap appears to have been around $19m. In 2003, they acquired the AMFAC system from Mayne Group which added to their pharmacy software systems. However, the company continued to struggle with losses, debts and dilution through to 2006, as the business gradually established a base at around $17m revenue. The name also changed to Corum Group at this time. Through 2008 and 2009 the company re-established a growth path, but continued to struggle with debt and cashflow, breaching their debt covenants with Westpac. This led to some shareholder activism by a majority shareholder and a change of Managing Director. At FY 2009, the company had debt of $7m, equity of $2m and accumulated losses of $83.5m. The major shareholder put forward funds to repay the Westpac debt.
During the period from 2009-2011, the annual revenue was around $21m pa, with profits of $1.1m and $1.7m in the latter years. Unfortunately, this wasn't the end of matters, as both the bank and the former executive directors made claims against the company, requiring further time and funds to settle. The last claim from Westpac was settled in January 2012. The final settlement was made in 3rd quarter 2012.
A debt and convertible notes (total $3.35m) to the majority shareholder now appear to have been repaid. Over the last year, the settlement of legacy issues has led to the share price rising from a low of 1.9cps to the current 11cps. The latest quarterly also shows the company has built up cash of $3.2m with total cash receipts of $23.5m suggesting that revenue may also be on the rise. With operating cashflow of $4.6m for the year, it seems the company may now be in a strong position to invest and/or pay dividends (although, due to retained losses, it is possible they will need to make a reduction of capital before dividends are payable, so more likely in 2013?).
The next challenge for COO will be in achieving further growth. The business currently has two parts - the pharmacy-support software systems remains in growth mode and was able to increase revenue by 7% and more than double underlying profit in first half. The e-commerce side provides non-bank payment transaction processing for a limited range of business and real estate (rental) payments. It appears to be in decline and the company appears to be taking a "cash cow" approach, increasing profits on declining revenues. Both sides contributed equally to profit in first half 2012, but it is likely that some decline in the e-commerce side can be expected over time and will, to some extent, offset growth in pharmacy support.
Overall, COO has been an example of how long it can take for a company to recover from excessive cash burn. Although the rapid rise of this year would have been difficult to participate in due to illiquidity, COO remains reasonable value at current market cap of $26.6m (11cps) and liquidity has improved. If current management can continue their good record and achieve growth, this could still prove a good investment at current prices.
Appearing to have listed in the late 1990's as a homeopathic medicine company named "Medicine Quantale" (MQL), this business evolved through acquisition and divestments in 1999-2001 to become a software business. In particular, they chose to specialise in the pharmacy space with "Retail Solutions and Electronic Payments" systems. At this point, it was known as "Cosmos Ltd (COO) after one of their acquisitions of the same name. Unfortunately, this process occurred at the time of the tech wreck, so Cosmos never got the chance to really establish themselves, with the share price plummeting and undermining attempts to inject new capital.
In 2002, they produced revenues of $14.8m (up 123% on pcp), but a loss of $17.6m, including $11m of impairments. Market cap appears to have been around $19m. In 2003, they acquired the AMFAC system from Mayne Group which added to their pharmacy software systems. However, the company continued to struggle with losses, debts and dilution through to 2006, as the business gradually established a base at around $17m revenue. The name also changed to Corum Group at this time. Through 2008 and 2009 the company re-established a growth path, but continued to struggle with debt and cashflow, breaching their debt covenants with Westpac. This led to some shareholder activism by a majority shareholder and a change of Managing Director. At FY 2009, the company had debt of $7m, equity of $2m and accumulated losses of $83.5m. The major shareholder put forward funds to repay the Westpac debt.
During the period from 2009-2011, the annual revenue was around $21m pa, with profits of $1.1m and $1.7m in the latter years. Unfortunately, this wasn't the end of matters, as both the bank and the former executive directors made claims against the company, requiring further time and funds to settle. The last claim from Westpac was settled in January 2012. The final settlement was made in 3rd quarter 2012.
A debt and convertible notes (total $3.35m) to the majority shareholder now appear to have been repaid. Over the last year, the settlement of legacy issues has led to the share price rising from a low of 1.9cps to the current 11cps. The latest quarterly also shows the company has built up cash of $3.2m with total cash receipts of $23.5m suggesting that revenue may also be on the rise. With operating cashflow of $4.6m for the year, it seems the company may now be in a strong position to invest and/or pay dividends (although, due to retained losses, it is possible they will need to make a reduction of capital before dividends are payable, so more likely in 2013?).
The next challenge for COO will be in achieving further growth. The business currently has two parts - the pharmacy-support software systems remains in growth mode and was able to increase revenue by 7% and more than double underlying profit in first half. The e-commerce side provides non-bank payment transaction processing for a limited range of business and real estate (rental) payments. It appears to be in decline and the company appears to be taking a "cash cow" approach, increasing profits on declining revenues. Both sides contributed equally to profit in first half 2012, but it is likely that some decline in the e-commerce side can be expected over time and will, to some extent, offset growth in pharmacy support.
Overall, COO has been an example of how long it can take for a company to recover from excessive cash burn. Although the rapid rise of this year would have been difficult to participate in due to illiquidity, COO remains reasonable value at current market cap of $26.6m (11cps) and liquidity has improved. If current management can continue their good record and achieve growth, this could still prove a good investment at current prices.