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Tuesday, July 25, 2006

EMGP, ELDO, both bad

EMGP (sec) Emergent Group owns PRI Medical Technologies acquired in 2001. Rent-a-stethascope: providing medical equipment on a fee basis to small medical providers and even some large ones. No customer concentration. 81 employees.

10-K, Q1 10-Q: revenues are increasing. 36% gross margins (and climbing, 38% in Q1). 9% operating margins (14% in Q1). 8% net margins (11% in Q1 but some tax benefit). Not much tax in that net margin. Balance sheet is fair. Equipment is like 2/3 depreciated in Q1. Cash flow from ops is good. However, depreciation is huge, meaning this is capital intensive. But it's not clear whether medical equipment inflation would be harmful or helpful or neutral. If leasing prices follow equpment costs closely, then it would actually be helpful.

There's a strange pair of entries in the investment cash flows regarding cash flows with limited liability companies, the amounts of medium sized. Need the "bad story" on that stuff.

Lots of stock issued for various things. 5.5 million shares on May 10, 2006. 431K options on March 31, 2006.

A P/E of 15 would put the stock at $2.50. It's currently trading at $3.00 which is probably a good estimate of full value.

ELDO (sec) Eldorado Artesian Spring Water. Colorado. Bottled water company: 5-gallon, 3-gallon to local grocery stores (probably like King Soopers). Also rented coolers.

10-K: They own property with a water spring, allegedly surrounded by government land. Water rights are junior to other water rights in the region and drought conditions in Colorado can cause a "senior call" meaning someone comes in and takes their water temporarily. But hey, when is there ever a drought in Colorado? They're working on alternatives. They also rent out a single-family home (this is the "resort" they operate?)

3 million shares on June 16, 2006. 500K options! 1 million warrants!

Weak balance sheet. Huge PP&E. Lots of debt. Revenues going up. Gross margins are high (obviously). SG&A is way high. They're right at breakeven. Cash flow from ops is good due to large depreciation (bad). Capex is low, but we would expect that. The nature of their capex will be rare but massive. Debt maturity is pretty far into the future (nearly all after 2011).

Maybe the stock is worth $1.00? It's selling for well over $2.00.

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