New Issue With an Interesting Long-term Growth Story

It’s very exciting. I’m almost ready with my new report – you should have it in your inbox inside the next week – and I think you’re going to love it. It’s the best shot at making good money from small cap shares we’ve had in a long, long time.

Most of my waking hours these past few weeks have been spent number crunching. Nothing new there – that’s my job. I’ve been picking through the accounts of established companies whose share prices have been unfairly dumped.

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What I’m finding is that many of these down-in-the-dump companies have rock solid business models, great management, plenty of cash in the bank and good sales growth. Bottom line is this: these shares are cheap for no other reason than the general market conditions. And that’s where this not-to-be missed opportunity lies.

Three shares that can kick off this recession and double your money

My money says that some of these shares are due for a juicy rebound – especially the ones with recession-proof businesses. And that’s the thing about my top three “bounceback” shares – the ones I’ll tell you about in my report: these three companies offer products and services we just can’t live without. They can still do well in this climate.

Anyway, there’s no time to go into this now. Let me get the report wrapped up and I’ll rush it to you as soon as I can. I’ll reveal exactly why it’s the perfect time for you to tuck a few pounds away in this particular corner of the UK stock market – and I’ll show you the three small cap stocks I think have the best chance of doubling your money at least in 2009.

In the meantime, I want to talk a little about a brand new listing that caught my eye...

Braving the AIM market this week and proving that the new issue market is not entirely dead is the Malaysian company MediLink-Global UK (MEDI).

After feeding £625,000 of expenses into the starving mouths of its City advisors, it is raising a net £1.5m through a placing of 11% of its share capital at 18p per share. Given that the majority of these new shares will be placed with high net worth individuals from Asia, the free float will be minimal and trading in the shares may prove sporadic at best.

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An interesting long-term growth story...

However, although it may seem hard to believe in today’s climate, illiquidity can exaggerate share price movements in an upward direction as well as a downward one. And in any case, those who buy shares in MediLink will be doing so not for a quick trade but because of the long-term growth story. And, as I discovered when I spoke to MediLink’s directors last week, the long-term growth story is very interesting.

What MediLink does is to provide an electronic method of processing healthcare claims. Its customers are big insurance companies like AIA, Allianz and ING, or corporates such as Hilton, Samsung and Alcatel-Lucent, which provide insurance cover and benefits for policy holders or staff. Let me give you an example...

An employee of Hilton is issued with a health card, very much like a credit card. On arriving for treatment at a clinic, hospital or the dentist, he presents the card to a receptionist who swipes it through an electronic terminal, which connects to Medilink’s data base. This verifies the details of the individual’s health insurance policy and his various entitlements to treatment.

The patient then proceeds to the treatment, the doctor files details of this treatment, and when the patient leaves, the receptionist swipes his card again at which point payment instructions are sent out to the insurance company or, if he is not covered by the policy, are presented to the patient. And if he needs to take a few days off work a text message can be sent to his employer.

Finally turning into profit

So MediLink is a third party administrator of medical claims, known as ‘TPA’s and is one of thirty in Malaysia. However, it is much the largest and is the only one that can offer the swipe card and the entire electronic processing system. In the six years of its existence it has now installed the MediLink system through a network of over one hundred hospitals and two thousand clinics in Malaysia. Last year it made its first profit, of £107,000 on revenue of £644,000.

On those numbers the £18m valuation placed on the company at its AIM admission looks generous. But MediLink is growing fast and has big plans to roll out the service across Asia. This sounds ambitious but MediLink has two important things going for it.

First of all this is not a business that requires huge capital investment and secondly its growth plans are a response to the wishes of its customers, especially the insurance companies. They want to offer a pan-Asian service and want an efficient claims processing service to go with it. The insurance companies also recognize that the system is a big improvement upon traditional paper based administration which is inefficient, expensive and subject to fraud. And they like the fact that it can capture details of treatment, provide management reports and help them to tailor their policies.

Expansion through Asia is on the cards

So MediLink has its eyes on Thailand, Singapore and Vietnam, but first and foremost it is targeting China. Having entered the Chinese market in 2006 with its first client being the Generali China Life Assurance Company, the MediLink system has already been supplied to one hundred health care providers in ten major cities, and to thirty-three thousand card holders.

This year MeidLink made a significant breakthrough by signing a deal with China’s second largest insurance company Ping An, which has fifteen hundred offices across the country and three hundred thousand agents. At present 95% of healthcare in China is delivered by the state sector. But as the population becomes wealthier, provision of private medical care and private health insurance is expected to grow. This is seen as one of the most attractive avenues of growth for the insurance industry.

The bulk of Medilink’s income comes from its third party administration services, where it charges a fee per member and the real attraction of the business model is that it can conduct a great deal more volume without a commensurate increase in expenses.

So if it can really crack the Chinese market and then roll out the service across Asia, MediLink could make a lot of money. It should also be easily able to finance its own growth. This should be great news, but it does have one drawback. In the absence of any further issue of new shares, the free float will remain very small, and this may deter new investors.

That’s all for today. I’ve just had an email pop into my inbox asking when my “bounceback” report will be ready. Not long now...

Regards,

Tom Bulford
for The Penny Sleuth

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P.P.S. If you want to follow the insights of a small company investor, and uncover the hidden gems of the stock market, find out more about The Penny Sleuth by clicking here.

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