thoughts as to whether this company is dead, page-4

i don't follow VGH closely and therefore don't have an up-to-the-minute perspective on the goings-on at the company.

However, I don't like the concept of VGH. Any specialist opthalmologist has a choice of setting up their own practice (possibly with a few colleagues) or instead joining VGH.

The only reason why a doctor will join VGH is if the reduced earnings associated with being a salaried employee is compensated for by factors such as a) certainty of income, b) not having to negotiate funding deals to kit out a surgery, c) not having to worry about back-office administration so much.

The benefits of a,b, and c are not that great - and therefore, the earnings discount that the doctor is prepared to accept is not that great.

Therefore, VGH has two choices:
1) don't employee any doctors (and therfore go out of business), or
2) pay the doctors almost as well as they could make in private practice as their own boss (and therefore not make very much profit).

Now, in the short run you might be able to achieve what looks to be a stronger result that points 1 and 2 above would suggest. This can be achieved by making today's doctor employees think that they should accept a lower salary BUT give them the lure of capital growth through share allocations / options etc. and persuade them that the capital growth will more than outweigh the shortfall in current year earnings. I suspect that this is what VGH has done to date - and it works OK for so long as the market is buying the story and the share price is going up and up.

It also helps if more and more doctors are getting sucked into the scheme - thereby growing corporate level earnings [this might be why the previous owner likened it to a ponzi scheme??]

However, as soon as the share price starts to fall, and the capital growth story becomes a distant dream. . . . suddenly the doctors want to be paid full clip TODAY.

As I understand it, a good proportion of the VGH doctor base is coming off contract in the next little while. These guys will be looking for big big pay rises to stay with the group. If they don't get these increases common sense suggests that they will set up their own practices.

Therefore - VGH was a product of a bull market that relied on constant capital growth to keep the doctors happy and the company profitable. Without that, the business model may well be dead.

But as I said - I don't follow the company.