Healthcare Enterprise Group

I suggest the best tactics here will be let F stump up the cash when the fund raising takes place.

I posted that expenses had rocketed the other day and management had lost control of same and the direction of the company which had expanded too quickly for their feeble acumen and ability to cope with.

It would seem that this has been noted, and a shortage of cash due to increased losses and out of control spending is going to mean a cash call in the new year.

I hope for your sakes that F has deep pockets and does not decide to cut it's losses

Healthcare Enterprise - SELL
Companies: HCEG
22/12/2005

Problems integrating recent acquisition Crest Medical have serious implications for diversified venture Healthcare Enterprise.

Chief executive Gordon Wood blamed delays in settling down Crest, bought a year ago for £7.5m from Alliance Unichem, for the group turning last year’s £320,000 profit into a £2.1m loss at an operational level during the six months to August.

This has changed significantly our original reason for recommending the shares a year and a half ago at 50.12p. Back then the group’s core business, which supplies first aid kits and other medical requirements to major companies and organisations, was generating significant amounts of cash. This was then used to develop the company’s early-stage products through regulatory trials and so take them to market.

However, with the core business now under pressure and losing money it becomes unclear how this development work can continue, particularly as the balance sheet looks stretched. In the period under review, £0.5m was spent on obtaining US approval for the company’s specialist disinfectant Ebiox. It looks as if the focus will have to be on sorting out the first aid box operations before more money can be spent in this direction though.

The prognosis does not look good. Gross margins have dropped from 50.4% to 41.6% at the same time as the proportion of revenue spent on operating expenses has climbed from 42.5% to 67.4%. The departing finance director, John Bradshaw, has taken out an invoice discounting facility to tide the group over, but net current assets are only £2.1m.

Nevertheless, the group’s other products in the fertility area do have potential but at present a fundraising looks on the cards and the company may have to rely on the generosity of shareholders such as Nigel Wray. This could be at the expense of smaller investors. Avoid.


It is obvious the finances of the company need re-structuring, the previous FD knew that but did not fancy the job so he walked.

I know I have been negative on this stock all year since I joined the thread and got insulted by several regulars for asking some simple but direct questions.

At the time only questions which where percieved to be in a +ve light seemed welcome. I will end today as it is xmas eve on a +ve note for anyone thinking of investing in HCEG.

I intend to buy stock AFTER the cash call has taken place, that will be when the chart says it is right to do so in my opinion. That HCEG need cash is obvious ... as the actions of the previous FD show , 'The departing finance director, John Bradshaw, has taken out an invoice discounting facility to tide the group over' from my last post refers.

Such is the state of the company's finances sheet, with margins falling and expenses rising ... 'Gross margins have dropped from 50.4% to 41.6% at the same time as the proportion of revenue spent on operating expenses has climbed from 42.5% to 67.4%' from my last post refers.

I estimate that a cash call will be asked for at circa 25%-30% discount to the SP when it is put to the market.

Therefore assuming some New Year Selling as the whiff of the plight of HCEG grows, some more selling could get the share down to circa 18p.

A 30% discount to get a 'rights issue' away would then mean the new shares will be have to be offered at 13p .... a bad number so say 12p for a better chance of success.

I think fund raising of minimum £5m will be needed as this will have to be a once only event , holders will not stump up again. Therefore 41,666,666 new shares will have to be issued .

However as the Mkt Cap is now only £35m at 21.75p share price, and at 18p will be £28.96m the new number of shares that will have to be issued will cause considerable dilution, so whilst my previous call of 10p was probably thought to be wide of the mark by many believers here, I think it may prove to be a little bit more of a suprisingly accurate forecast.

B