Wednesday, 2 January 2008

Brainhunter's Year End Results Move To Record Heights

Brainhunter (BH - TSX)

First, let's look at the highlights for Fiscal 2007 (Sept. 30).

Revenues jumped to $224.5 million from $166.5 million in F06.


  • The 35% revenue growth was organic versus previous years that saw sales number largely driven by the acquisition of professional staffing and solutions companies.


  • EBITDA (Earnings Before Interest, Taxes, Depreciation and Amortization) more than doubled to $7.76 million from just over $3 million the previous fiscal year. Based on just under 44 million shares issued, EBITDA per share in F07 was a little more than $0.17.

  • Cash flow from operating activities was $4.43 million or $0.10/share.
  • The net loss was $2.9 million compared to $4.7 million in F06.
In reviewing the financial statements, it's interesting to note that amortization of intangible assets (goodwill) comes to $3.9 million. There is over $20 million of goodwill and intangible assets that is still to be amortized. This non-cash item is essentially related to past acquisitions.

The market should remember this item that impacts earnings doesn't change the cash position of the company.

Amortization of capital assets is another $1.7 million. BH has over $16 million in tax loss carry forwards and over $2 million of investment tax credits.

What is directly impacting the bottom line is one particular portion of Brainhunter's debt and this has certainly been brought up more than once to The Howard Group.

The company's long-term facility was at $24.4 million at the end of F07. However, this facility is used in large part to pay BH's 1800 contractors and the operating line is secured with high grade receivables such as the federal government, large corporations and banking institutions. This isn't the issue.

The debt that has caused the most discussion is that related to such things as convertible notes, convertible debentures and obligations related to past acquisitions. Those obligations stand at just under $18 million with $3.2 million due to be repaid in F08 AND $14.68 million repaid in F09, which is when a number of the notes come due.

It stands to reason that if the company were able to eliminate or materially reduce this debt, a positive bottom line would arrive much sooner rather than later. Couple that with growing operating cash flow, which is being driven by organic growth and the numbers start to look very attractive.

As things stand now, Brainhunter has a market capitalization of approximately $20 million, which is LESS than one-tenth of its annual sales. Also, it's trading at 2.7 times EBITDA/share and 4.6 times cash flow per share.

Why is the stock price so low at $0.46? The results that BH is now delivering are more in line with what the company AND the market expected a couple of years ago. In that period, the market simply turned its back on BH. As we all know; it's easier to keep a customer than to win a new one. There's work to be done to regain traction BUT the most important thing is that the numbers are now showing up as management predicted earlier this fiscal year.

To read the entire news release click here.