A Note On Low Quality Stock Paragon Care (ASX:PGC)

2019-02-11T23:08:58+00:00

I am very sad to say I have previously suggested Paragon Care (ASX:PGC) was worth buying (and indeed owned shares myself).

Today I must announce I was wrong and I am very sorry about that.

In what was without doubt a stroke of luck I sold my Paragon shares recently after they announced a "strategic review". I was fresh from being burned by Energy Action's (ASX:EAX) strategic review and basically thought I should sell first and ask questions later. The lesson for me is that I should have probably publicised that move sooner. I'm sorry about that.

Today, Paragon announced that it will make EBITDA of about $9 million in the first half, because their "discontinued business" will make a loss of $5 million. (This includes a free-kick of $1.8 million, based on an accounting standards change)

Everything about this is unacceptable, and I expect the shares to fall heavily, especially as it dawns on the market that the dividend is in danger. I would sell on open.

Longer term, I suspect Paragon is good value in the vicinity of $100 million market capitalisation, which means it might be worth buying at a share price around 30 cents. However, it is doubtful I would ever consider buying shares again given I lack confidence in management after this surprise downgrade. Keep in mind that foreign investors recently bought a large chunk of shares at 90 cents, so I think a takeover is an extremely likely outcome. Importantly, I've no doubt this business is worth something -- just probably less than I previously thought (upwards of 80c per share, was my old valuation).

Aiming for takeovers is not really my style.

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Disclosure: The Author, Claude Walker does not own shares in Paragon Care. This article contains general investment advice only (under AFSL 501223). Authorised by Claude Walker

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A Note On Low Quality Stock Paragon Care (ASX:PGC)