• In today’s daily we recommend two growth stocks Capitol health (CAJ) and NearMap (NEA). CAJ recently announced its FY2015 results whose highlights were an increase of revenue by 23% from 90 million to 111 million, increase in Net Profit before taxes margin by 325 bps fro 11.3% to 14.5% and an increase in EPS by 48%. At the same time the dividend per share of the company increased by 39%. The increase in revenues was driven by Market share gain was driven by organic industry growth, acquisition of SR and IOP (part year), government regulatory changes to MRI referral rights. The growth in net profit margins were underpinned by scalability of the business model, ongoing improvement in cost and operational efficiencies and higher relative gap-charging clinics in the network. Underlying NPAT of $11.8m and reported NPAT of $3.9m are also reflecting higher effective tax rate due to non-deductible and partially deductible one-offs; deferred tax asset in future years. Organic, year-on-year revenue growth (pre acquisitions) stood at 8%. Acquisitions have contributed broadly in line with expectations with Capitol investing heavily in initiatives to drive financial performance and synergies inFY16 and beyond

      Capitol Health Daily Chart (Source - Thomson Reuters)

• Capitol is in the final stages of executing another NSW purchase; adding ~$7m in revenue and purchased at less than 5x EBITDA. The acquisition of Eastern and key radiologist hires will exploit opportunities through the NSW network. Industry growth driven by expanding and ageing population, emphasis on early detection and prevention, first time sub specialty radiology, critical service to Australian healthcare industry, improved accuracy and capability of imaging techniques attracts greater usage for preferred providers, government initiatives favouring those participants who have invested through shift towards MRI, technology disruption driving client outcomes and company productivity, personalization of medicine driven IT systems, networks and mobile devices. The company is making significant investment in IT to deliver a standard workflow environment, best of breed data and network security and investment in functional networking systems that improve the communication between referrers, patients & Capitol. Continued uplift in revenue and profits is expected due to network expansion & customer offering expected to deliver further market share gains, highly scalable and low-cost business model firmly in place,  investment in technology to improve workflow and debt headroom for future acquisitions. Board remains committed to a Progressive Dividend Policy supported by strong future cash  flows.

• Similarly Nearmap is a growth company firmly in the growth phase of business cycle. The company has strong subscriber base with long-term contracts and minimal churn and low incremental customer acquisition costs. The company is planning its expansion in the United States market.  The nearmap business model is a natural fit for the US, with its high level of urbanisation, high per capita GDP and similar business mix to Australia. The US strategy is focused on establishing a sales and marketing organisation that will initially target government and enterprise customers to generate immediate subscription revenue. Small business and personal users will be given a period of free access to drive adoption. Capture and commercialisation will be fully funded from existing cash flow.

• In the half year HY15 company registered a 44% subscription growth in Australia. The growth in subscriptions was supported by high renewals and new product launches. The company also has high and rising gross margins, gross margins increased to 89% in Australia. The company continues to have a strong balance sheet with no debt. The company is self-financing itself from net cash balance and high gross profits.  The company has made many investments to accelerate growth, for example a $4.4 million cash investment in US expansion and investment in Sales and Marketing. FY15 has started strongly for the company with continued growth in named users, which was complimented by the launch of new retail products and the successful transition of “white label” customers.  Growth target of the company remains unchanged, $30-$50 million revenue run rate is to be achieved by December 2015, with a $8 million combined capture and capital costs.  The company also plans to industrialize systems and processes and sales and marketing to drive its future growth.

• CAJ is currently trading at a stock price of $0.755. The company is currently trading at a Price to earnings ratio of 95.06 and a dividend yield of 1.62%. CHJ has earnings per share of 0.008 AUD. The 52-week high stock price of the company is 1.1 and 52 week low of 0.505. On the other hand NEA is currently trading at a stock price of $0.505. The company is currently trading at a Price to earnings ratio of 23.76.NEA has earnings per share of 0.02 AUD. The 52-week high stock price of the company is 0.835 and 52 week low of 0.380. Both the stocks are recommended as growth purchases.