@mike528 - yep still here and haven't sold. And extremely...

@mike528 - yep still here and haven't sold. And extremely tempted by the current prices. Only thing holding me back right now is I'm cash strapped and waiting for some funds to come in from another deal.

Obviously with the benefit of hindsight I wish I had of sold a parcel at 20c in August because I could buy back twice as many now. If I get some spare cash and it is still at these depressed levels then I will definitely buy more.

I met up with Dom on his recent trip to get an update on the presentation as I couldn't make it to the AGM. Nothing revealed that he hasn't told the market (he is too professional for that). Overall I sensed him being very positive towards the business and he is extremely disappointed with the share price and thinks it heavily undervalues the company. He has certainly put his money where his mouth is over the recent period.

I've also talked to a few brokers who I know follow the stock. And here's the rub for me. Those brokers keep lobbying for the company to do a large cap raise and get rid of the debt. Their view seems to be that there is a heavy penalty in the price for having about $18m of debt and a market cap of $17m (at that time) (net debt was lower due to cash on hand).

So those brokers were working on a "value" of about $35m. What those brokers said was that the company should issue stock to fully repay the debt (ie double the number of shares on issue). With no debt, they said it should probably trade around double the price because the company could comfortably pay a dividend as well as get growth, so would be a great outcome.

But to me, this just show massive conflicts of interest from the brokers. They really only want the equity issue now so they can get fees (and the new investors would do great out of it with a quick improvement in share price). The people who would lose out would be existing shareholders.

Why issue shares now when the cashflow of the business can comfortably pay back the loans in a relatively short period?

Today, the market cap is $14.1m (@$0.08) and the gross debt it $15.9m, so giving a total gross value of $30m (down from $35m). That is crazy in my mind. The company is reducing debt from cashflow and still investing for growth and doing some great deals.

They have repaid over $1m of debt in the last few months. At this rate, the company will be debt free in around 2 years. Using the logic of the brokers, once the debt is removed, the company could be worth around $70m. If there is no debt then that is all equity. Or almost 5x the current equity price.

I have no idea if it will get to that level and over what timeframe. But I think the company should hold course and continue to pay down debt without a large equity issue. If they want to make some extra investments and need cash, then choose to make one of the debt repayments in equity. It frees up cash and makes a bigger impact on the repayment. There is no need to rush here. If it takes 2 years to repay the debt in order to get 100% of the upside, then that is fine for me.

The company should just stay on strategy and not worry about the short term traders. And the thing I like most is that Dom is the biggest shareholder, so he is totally aligned with us. What is good for us is good for Dom.

Each quarter passes and the debt comes down. If at any time they do make a repayment with shares, I'm sure everyone will come out and attack them. And the price will take a hit. But the thing is, the share issue would actually be positive for the company and not that dilutive.

I sit back and laugh at lots of the comments on HC. So many people trying to read things into announcements when there is nothing there at all. The Track vendors haven't sold any shares. They are happy to have some more shares. They make it clear they think it is undervalued. What more can you want? (except a higher share price...)

Cheers
Marv

DISCLOSURE: I hold plenty of CM8