Tuesday, 28 August 2007

Brainhunter Stock Well Below Analyst's Target Price


Catalyst Equity Research analyst Robin Cornwell has just updated his research on Brainhunter (BH - TSX) based on the release of Q3 (June 30)/F07 results, which saw the Company reporting EBITDA of $6.17 million or $0.15/share basic.

Mr. Cornwell is maintaining his $1.70 target price with revenues forecast at $228 million and EBITDA of $0.20/share for F07 (Sept.30). The stock is trading in the low $0.60's.

Revenue in Q3 was $56.57 million and just a few thousand dollars short of $170 million for the nine months of the fiscal year.

On the subject of earnings he wrote, "Pre-tax income before non-cash expenses for Q3/07 was approximately $1.3 million up from $0.5 million in the same period last year (excluding the restructuring charge). A net loss was reported of $0.4 million in the quarter which was a significant improvement over the net loss in Q3/06 of $2.5 million (which included a restructuring charge of $1.6 million). The Q3/07 loss was after amortization expenses in the amount of $1.8 million and interest accretion (non-cash interest) of $0.3 million."

On the subject of debt he wrote, "The total debt of the company was $41.1 million up from $39.7 million as at the end of September which includes the current portion of long term debt
of $3.3 million and the bank term facility of approximately $22.2 million. Brainhunter has a revolving demand bank credit facility of $26 million."

Of note, he passed comment on BH's recent news release that it was exploring alternatives including private equity for acquisitions or possibly taking the company private. To quote him, "
This strategic review could in our opinion lead to a transaction that provides significant liquidity for shareholders and achieve a shareholder value more in line with our 12 month share price target."

Should Mr. Cornwell be correct in his pricing assumption if BH is taken private, the market may wake up one day not too far down the road and realize that it passed up a quick 100% to 200% gain on the stock from current levels.

To read the update research report click here.