Elite Diagnostics
Elite Diagnostics put out a prospectus that has erroneous interim results for the first quarter and even after sending out an addendum there are still errors in it that best the question as to credibility of the figures in the report, more importantly, the profit reported.
The question has been asked that in light of the errors and lack of credibility in the interim figures if the stock is still a buy.
First, the audited figures to June appear in order with earnings of 16 cents per share, while revenues 36 percent in the year to June over 2016. The report for the September quarter shows growth in revenues of 23 percent which appears credible when viewed against the increase for the 2017 fiscal year. Expenses for the quarter appear in line with what can be normally expected to flow from historical data. The new location on Old Hope Road, will add to cost and that is unknown as well as the likely increase in revenues that can be expected. The prospectus gives some indication of manning an equipment levels, that provides a good guide as to what can be expected for cost with 7 persons being engaged compared to 27 at the original location.
IC Insider.com delved further into the numbers and now forecast profit of 22 cents per share for the current year to June and 35 cents for 2019. The assumptions assumes growth of 33 percent in revenues for the rest of the fiscal year with the new location contributing to it, while cost is projected to jump by 30 percent and would result in profits of $78 million and $120 million in 2019 from a 23 percent increase in revenues. But revenues could grow faster with the benefits of listing.
Data shows that Junior Market companies get sizable bounce in revenues after listings, that flow from the injection of capital, new directors and most importantly, greater publicity from listing and trading. For example
Stationary and Office Supplies had a 13% point bounce in revenues after IPO
Stationery and Office Supplies saw a bounce of about 13 percentage point jump in revenues over and above the growth rate of 24 percent in the quarter prior to the IPO. In 2016, Jetcon Corporation got a major bounce in sales after listing as well. Recently listed FosRich also reported increased business as a result of their listing. IC Insider.com expects to see quite some increase in revenues for Elite due to the increased exposure from the listing.
Elite shares now rank as the sixth highest ranked Junior Market stocks for gains in 2018.
The Elite shares remain BUY RATED notwithstanding the foul up of the interim figures. The concern is with the directorship as it would be expected that the company would have had budget with the figures compared with the actual. In such cases the directors should have picked up that the depreciation was omitted from the report, well before it was incorporated in the prospectus. The discrepancy between the cash flow, the income statement and the addition of fixed assets would have been more challenging, but with a board of 9 comprising a number of experience business and financial personnel one would not expect the type of error but it will be a moment of embarrassment for them and it one they will never forget, hopefully Elite will be the better for it.
