Blackmont Capital and Paradigm Capital report on Healthscreen

We can never talk enough about our own portfolio companies. Healthscreen Solutions (MDU-TSXV) is a Wellington Financial Fund III client. These summary research reports were recently issued by Blackmont Capital and Paradigm Capital:

“Physician Services Business Continues Along Growth Trajectory

Executive Summary

Healthscreen Solutions Inc. (MDU-TSX) reported FQ4/08 and F2008 (Sep) results that continue to demonstrate the strong growth trajectory of its physician services business.

In addition, Healthscreen announced a strategic partnership with global software vendor, CA, Inc., to form a joint initiative to develop technology and services aimed at helping doctors offer chronic disease management programs to their patients.

Total revenue was $3.1 million, more than double its revenues in the same period last year and ahead of our $2.8 million estimate. Primary growth continues to be driven by the Physician Services segment, which generated $2.1 million of revenue, ahead of our $2.0 million estimate.

Average Revenue per Doctor (ARD) increased to $2,588, up from $2,394 in FQ3/08. In addition, the number of physicians using Healthscreen’s solutions increased to 4,729 up from 4,370 last quarter. We highlight that through a recent acquisition and several partnerships, Healthscreen has access to over 8,000 doctors in Canada representing over 7 million Canadian patients.

We are leaving our F2009 forecasts intact. At the current valuation, we reiterate that Healthscreen provides a compelling investment opportunity for potential investors. We reiterate our Speculative BUY recommendation and C$0.50 per share target price, derived from a DCF

valuation using a 20% WACC and 2% terminal growth.”

And from Paradigm Capital:

“A Work In Progress, But Interesting Opportunities Emerging

Healthscreen reported in-line Q4/FY08 results, which included revenues and EPS of $3.1m and negative $0.01. EBITDA, however, came in slightly lower-than-expected at negative $279k, versus our breakeven. Note that as part of the Q4 results, the company indicated that accounting errors were identified, which resulted in the restatement of the first three quarters of FY08. While these restatements do not appear significant, we do view them as an early black eye for the company, although it indicated it has taken steps to address these internal deficiencies, including implementing a new accounting system and hiring a new CFO with over 25 years of experience. As part of the results, the company also announced an agreement with CA, Inc. (CA-–N) to form a joint initiative to develop technology and services aimed at helping doctors offer chronic disease management programs to their patients. While details of the partnership are now being finalized, we expect to see CA leverage Healthscreen’s physician and patient footprint to proliferate its disease management software offering. On the back of the Q4 results, we have made some adjustments to reflect a slower growth profile (to acknowledge the challenging macro-environment), including a push out of our EBITDA profitability target to mid-FY09, along with the impact of the recent $850k equity financing. We are also lowering our target price to $0.50, which is based on 2x EV/Sales (FY10e).

While we continue to view Healthscreen as an interesting vehicle to leverage the growth in physician based services, we await more tangible milestones (such as an acceleration of physician/patient adoption, final details around the CA partnership, and achieving breakeven results) before getting more aggressive with our estimates and valuation.

Given the 108% potential return to our target, we are maintaining our Buy rating.”

MRM (disclosure - our Fund III owns warrants in MDU)