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Global Health Limited shares surge 18%: Is it the small-cap pick of 2015?

Shares of E-health solutions group Global Health Limited (ASX: GLH) surged 18% on Tuesday after the company announced that its Electronic Medical Record system (EMR), MasterCare MHAGIC, would be rolled out in a further 4 Youth Mental Health centres by January 2015.

The announcement takes the number of headspace centres using Global Health’s EMR system to 42, out of the existing 77 centres nationally. This number is forecast to increase to 100 by December 2016 and the company is well placed to be the provider for all 100 based on current success.

Revenue from the company’s MasterCare EMR application has increased by 33% in the first four months of the financial year and the rollout of a cloud-based application may allow an international expansion for the company.

Is now the time to buy?

Global Health shares are trading 63% lower than they were in mid-March and could represent a reasonable opportunity for long-term investors. Questions still hang over the group’s earnings for the financial year after the South Australian Government declined, and then appeared to reconsider, an upgrade from the aging CHIRON Patient Administration System to the new MasterCare ePAS system.

The loss of the SA Health contract could result in a 1.5 cents per share hit to earnings for the financial year, representing over 30% of FY14 earnings. If the impact to the company is a decrease from 4.4 cents per share to 2.9 cents per share for FY15, the company is trading on a price to earnings ratio of just over 10. This could be a good buying opportunity if the company’s outlook of regaining the lost earnings within 12-18 months is achieved.

Investors should note that capital expenditure will rise over the coming years to maintain R&D efforts. This may depress earnings growth in the short term but may speed up the group’s expansion plan overseas. Companies like ResMed Inc. (CHESS) (ASX: RMD) have for years spurned massive dividend payouts in favour of greater R&D spend to boost the product pipeline, and thus profits, well into the future.

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Motley Fool contributor Andrew Mudie owns shares in Global Health. You can find Andrew on Twitter @andrewmudie

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