CML Healthcare (CLC-T)

In the midst of a take-out with Life Labs – an OMERS company. This is the reason for the pop in share price recently. The industry is consolidating. It is time to move on.

Made a big splash into the US by buying a radiology business, which didn’t work out well. Have a new CEO with a new focus. In a few months we’ll hear from the Ontario Ministry of Health with what their sentiment will be on their labs. Dividend had already been cut. He is sticking with it. 7.2% dividend yield.

Sold her holdings last year on concern about sustainability of the dividend. Focused predominantly in Canada and growing their labs business. Feels they are doing all the right things in focusing on small growth initiatives. The challenge is that they are in an industry with a lot of headwinds. Would be concerned about the sustainability of the dividend over the medium and long-term, given the lack of growth initiatives available.

7.5% dividend. One of the big laboratories with 30% market share in Ontario. Recently cut dividend and they are selling some of their diagnostic assets, which he thinks are all good things. But 75% of cash flows are from medical labs. CML renegotiates contracts with the Ministry of Health and they are cutting back on healthcare. The contract is being renegotiated this year. Be cautious right now. They are doing the right things so they are coming back to the core side of their original business.

Doesn’t know where the management team is taking this thing. Wouldn’t be ready to jump in and buy it. There has been too much mismanagement.

Fundamentally it has not performed well for a long time.

Largely in the lab testing business and their largest client is the Ontario government. Major risk is the Ontario government’s $14 billion deficit deciding that they are going to squeeze the lab companies. It will probably be another year before you know.

For many years they were able to live off the model of their laboratory business and contracts with the governments but Ministries of Health are getting tighter and tighter. Also, had some problems with their US exposure in radiology that didn’t work out. New management. For the time being, they tend to maintain their dividend but they would really like to lever the higher margin lab business.

It was at nearly $11 and has traded down a couple of dollars. This is never a good thing. The trend is downwards. The only positive he sees is that there is a lot of volume so there is a lot of buying going on. You can buy it for the dividends but if it hits $8 then you have to get out.

This is in a very strong sector so it is in a good neighbourhood and this is one of the poorest houses in the neighbourhood. Known a positive thing is that the low in 2011 has not been taken out. The trend is still down. Don't add to your position and if the low is taken out, start your Selling process.