CymorFund Stock Picks – Buy QHR Technologies $0.78

Cymorfund Investment Letter Stock Picks  – QHR Technologies Inc  (QHR-TSX $0.78)

 September 18, 2014

Healthcare worker

What Does QHR Do?

A quote from the company’s website – “QHR is a leader in quality and technology, providing software and services in the following markets: In the Electronic Medical Records (“EMR”) market, QHR offers a suite of medical software modules that provide computer-based medical records for family physicians, medical specialists, and surgeons, as well as administrative modules for billing and patient scheduling, that is a key component in the move throughout Canada to provide electronic healthcare records for all Canadians.  QHR also provides on-site and off-site (ASP) hosting capabilities for the EMR market.”

Buy QHR Technologies Inc (QHR-TSX) – $0.78

 

 

The Stock

QHR has been public since 2001. It started in Western Canada as a provider of payroll services for medical clinic employees, but had limited scope and the stock after reaching $1.00 in 2004, languished until 2009 when it moved below $0.20. It again moved up to the high $0.70’s range in both 2010 & 2011, and then fell back to the $0.40 range.

Recently, it has made a number of good strategic moves and is being again noticed, reaching a recent high over $0.80.

This stock is now undervalued and has lots of upside.

The Good News

This company has grown strategically and wisely. It has now moved across Canada although it has no operations in Quebec. It has bought clinics; it has expanded and improved its software dramatically; it has expanded its services;  it has continued to hire excellent quality middle management and the best news of all is that it has now moved into the USA market.

Revenues have increased in the latest quarter from $6.9 million in the prior years comparative quarter to $8.2 million in the latest quarter. Revenues for the latest 6 month period have increased by $2 million from the previous comparative quarter. The company is now on target to exceed $32 million in revenue for the current year. 

QHR is now neck and neck with the other largest Canadian service provider, and it continues to grow, outpacing all other similar providers. In 2010, it serviced 128 clinics (a clinic may have 1 doctor or any number of doctors), but it has now grown to service 358 clinics. It signs or buys a new clinic in Canada approximately once a day – a significant growth performance. 50% of this growth comes from buying new businesses, and 40% of this growth is by taking business from competitors.

ObamaCare 

Canada has a complicated healthcare system, with numerous categories of employees rendering all kinds of services, and 12 jurisdictions each with its own complicated set of rules and reporting requirements. QHR copes with this system very well.

In the USA, the system is far more complicated. Medical services vary with the state, the entrepreneur, the insurers, the HMO’s. and the public and private facilities. The variations are in the thousands.

The good news is that in Canada, the average revenue is between $50-$75 per month, whereas in the USA it can be in the $1,000’s. In Canada, the company has about 9,000 doctors as clients, of a total market of about 72,000.  In the USA, there were 850,085 physicians in 2010 with  an active license to practice medicine in the United States and District of Columbia.

The revenue potential is enormous, and the market is tremendously larger than Canada’s. 

Acquisition of OPEN/EC in the USA

To enter this enormous new potential, QHR in 2012 purchased a US provider of similar services. This created a toehold, and the software necessary to cope with the large variation of reporting and employee functions.

QHR has shown an intelligent way to grow and prosper and to create value. Now that it has access to this much larger market, the potential is large,

The Profits Are The Problem

There is a ton of good news about the company, but the problem is that the profits are dismal.  The comprehensive net earnings for the three months ended June 30, 2013 was $255,914, compared to a comprehensive net loss of $104,598 for the same period in 2012. 

This dismal profit picture may be partially explained by the cost of acquiring new business almost daily, and the costs of changing and implementing existing systems in acquired businesses to those of QHR. Still, profits are so disappointing that the company emphasizes EBIDTA and Cash Flow in its news releases and says little about profits – or the lack of profits. 

Risk

This is a company that has grown and matured well. It has an excellent strategy and it has executed its game plan well. But history is strewn with examples of Canadian companies that expanded into the USA market, only to retreat back to Canada with their tails between their legs. 

Let’s hope that QHR uses its hard earned wisdom to execute it expansion into the USA with thought and diligence.

 

We may or may not have positions in securities we name. In making an investment decision consider numerous factors such as portfolio balancing, timing, cash and capital reserves, asset allocation and other. Do your own research. Matters discussed contain forward-looking statements that are subject to risks and uncertainties and actual results may differ materially from any future results, performance or achievements expressed or implied.

Views expressed are opinions and not investment advice. You should retain a licensed professional to guide you and  not rely on the opinions expressed herein. This report is neither a solicitation nor a recommendation to buy or sell securities. We are not a registered investment advisor nor a broker-dealer. The information contained herein is based on sources which we believe reliable but is not guaranteed as being accurate or a complete statement or summary of the available data.

By Larry Cyna

Mr. Cyna is an accomplished investor in the Canadian public markets for over 20 years, and has managed significant portfolios. He is a financing specialist for private and public companies, and has expertise in real estate and debt obligations. He has assisted private companies accessing the public markets, has been a founding director of public companies and continues as a strategic consultant to selected clientele. He is and has been a director, a senior officer and on the Advisory Board of a number of TSX and TSXV public companies in the mining, resource, technology and telecommunications sectors, and the Founding Director of two CPC’s with qualifying transactions in mining and minerals. He was an honorary director of the Rotman School of Management MBA IMC program, has completed the Canadian Securities Institute Canadian Securities Course & Institute Conduct and Practices Handbook Course, was a former Manager under contract to an Investment Manager at BMO Nesbitt Burns, a roster mediator under the Ontario Mandatory Mediation Program, Toronto, a member of the Institute of Corporate Directors of Ontario, a member of the Upper Canada Dispute Resolution Group, and the Ontario Bar Association, Alternate Dispute Resolution section. He obtained his designation as a Chartered Accountant in Ontario in 1971 and was the recipient of the Founder’s Prize for academic achievement together with a cash reward. He became a CPA in the State of Illinois, USA in 1999 under IQEX with a grade of 92%. He is a Member of the Institute of Chartered Accountants of Ontario and the Canadian Institute of Chartered Accountants. He holds certificates in Advanced ADR & in Civil Justice in Ontario, Faculty of Law, University of Windsor, certificate in Dispute Resolution from the Ontario Institute of Chartered Accountants. Previous accomplishments are Manager of Cymor Risk Consultants LP specializing in Risk Management Assessment; CEO of Cyna & Associates specializing in mediation and ADR; Founder & Senior Partner of Cyna & Co, Chartered Accountants, a fully licensed and accredited public accountancy firm with international affiliations; and was a partner in a large public accountancy firm. Mr. Cyna is well known in the Canadian Investing community. He is invited to, and attends presentations given by public companies usually 3 or 4 times each week. These presentations are intended by the various hosting companies to present their inside story to sophisticated parties and Investment Managers for the purpose of attracting funding, or of making parties more interested in acquiring shares of those companies. Being a part of this keeps Mr. Cyna deeply involved in the current market and leads to numerous investment opportunities.

2 comments

  1. Hi Larry , have you ever heard of Nightingale Informatix. Trades on the Venture. Also in EMR. Love to know your opinion in these guys. They also have preat potential with dismal earnings.
    Thanks
    Bryan Ceresne

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