MEDISOLUTION LTD (MSH.TO)

Benj Gallander, president, Contra The Heard and Ben Stadelmann, vice president, Contra the Heard mentioned MSH.TO today on ROBtv today and the stock shot up by 40% immediately. I took a look, and it is rather interesting. Here's are some salient points:

1. A decent business model. The company serves the healthy care industry, primarily in the province of Quebec, although it is expanding to other provinces and USA. About three quarters of its business are recurring and growing, while its hardware business is declining. While top line has showed no growth in the past few years, it has stabilized at about $45 million level.
2. Positive cash flow. While losing money, the company generating positive cash flow from its operations for the past three years and in FY06 (March 06), it generated about $0.05/share cash from its operations. Outlook for FY07 cash flow remains positive.
3. Compelling valuation. At currently, it is traded at 0.8X of its revenues and about 4.6X of its cash flow from operations.
4. Strong support from Brascan. Brascan owns 60% of its outstanding common shares. In addition, it provides financial support in the form of two credit facilities. Given the strong support, the risk of bankruptcy is very limited.
5. Buy back. Believe or not, the company actually bought back some stocks last year at 0.35 level.
6. Cut costs. The company continues to cut its operating costs, reduce headcount and lower its debt level, which will further improve its cash flow and profitability.
7. Defensive sector. The company serves the healthy care industry, a public sector in Canada. Given the potential hard landing or even recession in North America economies, it is not a bad place to hide.
8. Limited coverage. There is only one analyst covering this stock.
9. Catalysts. While no obvious near term catalysts, I expect the company will continue to improve its cost structure in next few quarters and it is conceivable that it may be able to break even at four quarter of FY07.
10. All time low. It is bouncing from all time low.

Having said that, this is a very speculative stock without any earnings. Be cautious and mind your entry point.

Position: None