The New Criterion: three stocks with a sporting chance

Tim Boreham

Independent Investment Research

With several former AFL players looking on, a recent investor presentation in Melbourne showed video of several sickening head on collisions in AFL, NRL and American football matches.

The really disturbing aspect was that every case, the victim played on until it was blatantly clear he was not at all right.

While some of the footage related to a more rough and tumble bygone era – and the old timers in the room could attest to the more cavalier attitude -- some of the vision was contemporary.

UIn the broader contact sports sphere, concussion is fast evolving from an acceptable workplace risk to a multi-billion dollar headache for sports organisations and – more pertinently -- their insurers.

US studies suggest that half of all concussions go undiagnosed, with the players unconscious in only 7.5 percent of cases.

While the long term effects of cumulative head knocks remains in dispute, past players are queuing to sue clubs and code administrators for breach of duty of care.

In the US, a study found it was found that 110 out of 111 National Football League players showed signs of chronic traumatic encephalopathy, a degenerative disease caused by repetitive head trauma.

Not all of the players suffered known concussion in their career, which mean the problems could be more widespread than thought.

The NFL recently struck a $US1 billion settlement, but some pundits reckon the ultimate cost could be double that. Here, players suing for concussion related damage include Brownlow Medalist John Platten, former Essendon premiership player John Barnes and former Newcastle Knights winger James McManus.

Which brings us to Cogstate (CGS, 57c), a cognition appraisal specialist whose Cognigram concussion test is used by numerous elite sports bodies globally on match days.

Here, it’s mandated by the Australian Football League and the National Rugby League.

In truth, Cognigram is only a small part of Cogstate’s activities, which are more about assisting third party clinical trials for conditions such as Alzheimer’s disease and dementia, Parkinson’s disease, schizophrenia, autism and epilepsy.

Cogstate provides services to 14 of the top 15 pharmaceutical companies (as measured by research spend).

Of Cogstate’s $30m of revenue last year, only $400,000 was attributed to the healthcare (Cognigram) division, which lost $1.9m.

But the period marked only the first full year of Cognigram’s commercialisation, with the device approved by the US Food & Drug Administration in July last year and then by European authorities this year.

Cogstate overall is modestly profitable, making $106,000 last year. The company has guided to a stronger net profit in the current year, albeit with the current (first) half affected by $2m of non-recurring restructuring costs.

Naysayers might note that Cogstate has been around for a while now, having listed in 2004. But that hasn’t deterred the company’s long term shareholders -- including the Myer family and the Dolby family of sound-system fame – from hanging in there in the hope of a knock-out performance.

Catapult Group (CAT) $1.08

The sports ‘wearables’ innovator is a classic example of a tech company rising from nowhere, but then overshooting the mark valuation-wise.

In a little over a decade Catapult has become the world’s biggest supplier of devices to track the vital stats of athletes such as speed, movement and positioning.

Operating mainly in the professional (elite) sector, Catapult has tied up clubs and leagues from most of the key code: 1800 clients across 35 sports in all. Most of the devices are sold by subscription, which brings in steady annuity revenue.

Catapult turned over $76m in the 2017-18 year, up 26 percent. But its growth has not been all organic, with the company shelling out $80m in late 2016 to acquire the Boston based video analytics house XOS Technologies.

Smaller acquisitions include the Canberra based GPS Sports, Ireland’s Playertek (wearable analytics) and SportsMed Elite and Baseline (artificial intelligence).

During the year launched Playr, a device for the 20 million strong ‘prosumer’ (keen amateur) soccer market capable of detecting 1250 movements per second.

But solid profitability remains elusive to date for Catapult, with a 2017-18 net loss of $17.4m (compared with $13.6m previously) and underlying ebitda of $1m ($2.9m previously).

This year, the company expects double digit annual recurring revenue growth and expects to generate “positive cash flow at group level” by 2021.

Catapult shares have retreated to one-quarter of their peak value of $4 in August 2016 (which followed a $100m share raising to fund the XOS purchase).

But the stock is also twice as high as its December 2014 listing price of 55c and bears a $210m market capitalisation. So the glass is either half full, or half empty.

Impression Healthcare (IHL) 1.7c

Do sport and cannabis mix?

The country’s biggest mouth guard provider is trying to take a bite out of the sports market, having recently won the exclusive rights from the AFL to use the colours and logos of all 18 clubs.

In February Impression signed a similar deal with the NRL in February pertaining to its Gameday mouth guard brand and it’s in discussions with a large retailer to distribute both products.

Impression’s enables users to take an impression of their chompers at home, with the finished mouth guards mailed to them.

Impression also has a “preferred practitioner” arrangement with 70 clinical dental clinics, including those under the banner of the listed Pacific Smiles.

As for the cannabis bit, Impression last month signed a letter of intent with AXIM Biotechnologies to secure local distribution of the US pharma company’s present and future cannabinoid therapeutics.

The link is oral health, with potential products including cannabis infused toothpaste and mouth rinses.

The list of ASX minnows without any intent of entering the “pot stock” sector diminishes by the day.

As with so many start ups with a good idea, it’s been a case of too few incomings and too many outgoings for Impression since back door listing in late 2016. Impression reported 2017-18 revenue of $1.01 million – albeit 259 percent higher – and a net loss of $2.9m.

The skinny end-of-year cash balance has since been supplemented with a $145,000 of debt funding and the company is in the throes of a $735,700 rights raising.

The Gameday mouth guards sell for between $69 and $129, which is dearer than an inferior ‘boil and bite’ specimen at $10 to $90, but cheaper than a dentist fitting which could cost up to $600.

Impression also sells higher margin mouth guards for sleep apnea (snoring), bruxism (teeth grinding) and teeth whitening.

Impression’s initial board included John Worsfold, but a year later the Essendon coach had bailed out to focus on his day job.

But not to worry: the mouth guards are still being spruiked by ‘Gameday Ambassadors’ Gary Ablett jnr, Rory Sloane (AFL players) and NRL legend Jonathan Thurston.

Tim Boreham edits The New Criterion


Disclaimer: The companies covered in this article (unless disclosed) are not current clients of Independent Investment Research (IIR). Under no circumstances have there been any inducements or like made by the company mentioned to either IIR or the author. The views here are independent and have no nexus to IIR’s core research offering. The views here are not recommendations and should not be considered as general advice in terms of stock recommendations in the ordinary sense.







3 stocks mentioned

Tim Boreham
Tim Boreham
Editor of New Criterion
Independent Investment Research

Many readers will remember Boreham as author of the Criterion column in The Australian newspaper, for well over a decade. He also has more than three decades’ experience of business reporting across three major publications.

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