Analysis - BRC - Brain Resource Company

The following is a very quick analysis - a look at key numbers of BRC. This analysis is prompted by the sudden increase in buy volume of BRC today. Not only is there a 15% price jump, the volume traded got a big boost. This certainly looks like someone knows something is going to happen. So the question is whether it is worth the punt?



Date Open High Low Close Volume
11-Mar-10 0.26 0.30 0.26 0.30 765,530
10-Mar-10 0.25 0.26 0.25 0.25 0
9-Mar-10 0.25 0.26 0.25 0.25 0
8-Mar-10 0.26 0.26 0.26 0.26 4,000
5-Mar-10 0.26 0.26 0.26 0.26 7,500
4-Mar-10 0.25 0.26 0.25 0.25 0
3-Mar-10 0.25 0.26 0.25 0.25 0
2-Mar-10 0.25 0.26 0.25 0.25 0
1-Mar-10 0.26 0.26 0.26 0.26 58,500
26-Feb-10 0.26 0.28 0.26 0.26 0
25-Feb-10 0.27 0.28 0.27 0.27 0

A quick analysis of the numbers in the half year report are shown in the numbers below. On the positive side, BRC is a biotech / diagnostic company where the core product is not drugs, rather it is a large database of brain related information and specialised software for brain analysis.







Date 11/03/2010
CMP 0.3
EBIT 672067
NPAT 778185

Interest Expense 0
Interest Earned 106118
Net Interest Expense -106,118


Debt Short term 0
Debt Long term 0
Debt Other 0
Total Debt 0

Cash 14,672,976
Intgb Assets 13,359,586
Deferred Tax Assets 350,000
Depreciation 51,027
Interest Bearing Investments 0
Total Assets 30,247,849
Total Equity 12,402,599

Sales 3,828,462
Cost of Goods 2,524,225
Cash Flow from Operations 1,462,214
WANOS 91,714,454
EFPOWA 91,714,454
Shares at End of Period 91,714,454

ROR (Required Rate of Return) 10

PE Sector 12.95

Net Income 778,185.00
Gross Cash Flow 829,212.00

Net Debt to Equity = -1.18
Net Debt to (Total Assets - Intangibles)-0.87
Net Debt / (Net Debt + Equity) 6.46
Net Interest Cover Ratio = -6.33
Debt to Gross Cashflow 0
CFPS 0.02
EPS current 8.48E-03
EPS previous 3.80E-02
PER 35.36
Gross Margin 34.07%
NPAT Margin 20.33%
NTA/share -0.01
ROE 6.27%
ROA 4.32%
Market Capitalisation 27,514,336

EQPS 0.14
Buffet Value 8.48E-04

EPS Growth -77.67%
PEG -0.46


Financially, BRC is debt free. It is a profitable company, unlike majority of cash-burning biotechs. Cash flow numbers look very good indeed. Hence the 3 major financials of profit - debt - cash flow; all look very good.

On closer inspection, we see the intangibles asset is almost half of the total assets. In fact the Net Tangible Asset (NTA) becomes negative because of the large intangibles. In addition, there is a big contribution to liabilities from Payables - which is almost 10 times receivables. Is it healthy for a company to have such disproportionate payables? When are they going to need to pay up?

In addition the ROA and ROE are quite modest. Applying the Warren Buffet 1981 formula, assuming we are asking for a 10% Return on our investment, the formula puts a price on BRC of $0.00085, which is certainly less than $0.30.

Opinion to myself: Buy quickly if brave and pull out soon. The long term health of BRC is yet to be confirmed.