Stocks’ Details

Ramsay Health Care Limited

RHC Declares Distribution For its Shareholders: Ramsay Health Care Limited (ASX: RHC) recently released a notification regarding dividend/distribution of AUD 2.29310000 (fully franked), over security RHCPA - TRANS PREF 6-BBSW+ 4.85% PERP SUB RED T-10-10 with ex-date on October 2, 2019, record date on October 3, 2019, and payment date on October 21, 2019. In another announcement, its French subsidiary, Ramsay Générale de Santé (RGdS), had launched a EUR625 million renounceable rights issue as part of its previously disclosed intention to refinance its purchase of Capio AB.

H1FY19 Financial Performance:The group’s revenue increased by 14.9% pcp to $5.1 Bn and EBITDA increased by 9.8% pcp to $728.6 Mn. Its core net profit after tax (Core NPAT) increased by 1% pcp to $290.8 Mn.


 1H FY19 Financial Metrics (Source: Company Reports)

What To Expect: As per the release, Brexit concerns may pose some challenges in the short term, but the volume growth is returning, and tariffs are expected to improve. In France, the tariff increase was a clear positive signal for the sector. The Company is expected to achieve synergies related to the Capio transaction, integrating the business with RGdS and undertaking a review of non-strategic assets. In Australia, the Company maintains a market leadership position in terms of the strength and diversity of its portfolio with a focus on delivering high quality services. While there are short term challenges for the private healthcare sector, the long-term outlook for the sector is positive. RHC has reaffirmed its FY19’ Core EPS growth of up to 2% (including Capio).

Stock Recommendation: Its gross margin, EBITDA margin, and net margin for H1FY19 stand at 73.9%, 13.5% and 5.3% which are better than the industry median of 30.4%, 10.5%, and 3.7% respectively, implying decent fundamentals. Its ROE for H1FY19 stands at 11.2%, better than the industry median of 7.2%.

Hence, considering the aforesaid facts and current trading level, we recommend a “Hold” rating on the stock at the current market price of $70.250 per share (up 0.832% on May 24, 2019).
 

Sonic Healthcare Limited

Expansion of SHL’s US operations: Sonic Healthcare Limited (ASX: SHL), in its 1H FY19 results, reported completion of the acquisition of Aurora Diagnostics which has added 32 anatomical pathology practices and 220 pathologists to its US operations. It also acquired the anatomical pathology practice Pathology Trier in Germany and formation of a laboratory joint venture with ProMedica Health System, Inc. in the mid-west of the US. SHL has now more than 900 pathologists globally, comprising the largest pathologist group in the world. Besides this, the group has changed its registered office and principal administrative office to Level 22, Grosvenor Place, 225 George Street, Sydney NSW 2000 from its Macquarie Park Location, effective from 24 May 2019.

The Company reported an increase in revenue by 9% to $2.9 Bn. It can be mainly attributed to strong performance in the US, Australia, and Swiss laboratory operations.Its underlying EBITDA increased by 7% pcp to $485 Mn. Its net profit increased by 7% pcp to $223 Mn. The Board of Directors declared an interim dividend of 33 cps (franked to 20%), with the record date of March 11, 2019, and payment date of March 26, 2019.


 H1FY19 Financial Metrics (Source: Company Reports)

What to Expect: The Company has a rich pipeline of acquisitions, joint ventures, and contracts ahead. It has a strong balance sheet with headroom for expansion.The Company has upgraded its full year underlying EBITDA growth (constant currency) guidance to 6-8% to incorporate Aurora Diagnostics acquisition. Its interest expense is expected to increase by approximately 4% on a constant currency basis.

Stock Recommendation: The company’s gross margin, EBITDA margin, and net margin for 1H FY19 stand at 83.5%, 16.6% and 7.9% which are better than the industry median of 30.4%, 10.5%, and 3.7%, respectively, indicating decent financials against the concerned industry. However, it is presently trading at 52-weeks high level of $27.00, and therefore the probability for correction might trigger in the near term. Hence, we put our watch stance on the stock at the current market price of $26.130 (down 0.038% on 24 May 2019) and suggesting that the investors should wait for a better entry position. 
 

Paragon Care Limited

On-Track to Meet its FY19 Revenue and EBITDA Guidance: Paragon Care Limited (ASX: PGC) in its Quarterly update – March 2019 reported that it expects to meet its stated FY19 targets for its continuing business of around $240 Mn in revenues and $28 Mn in EBITDA.Its Eye Care division of the business experienced sales growth in excess of 15% this quarter versus the previous corresponding quarter in FY17.

H1FY19 Financial Performance: Its revenue from continuing operations increased by 166% pcp to $119,368,120. Its profit after tax from continuing operations increased by 6% pcp to $5,125,430. The Board of Directors declared fully franked interimdividend of 1.1 cps, with the payment date of 26 April 2019, and record date of 22 March 2019.

1HFY19 - Key Sales Verticals (Source: Company Reports)

What to Expect: Migration of the Company’s business onto the chosen Microsoft D365 platform is progressing well and is on track to achieve the target of transitioning 70% of the overall Paragon business onto the platform by June 2019. Its optimal target EBITDA to Sales ratio of 13% is expected to be met by FY20.

Stock Recommendation: Paragon Care’s share generated a negative YTD return of 30.16% and is trading close to its 52-week lower level of $0.400 with an annual dividend yield of 7.05%.

Its gross margin, EBITDA margin, and net margin for H1FY19 stand at 38.2%, 12.2% and 4.3% which are better than the industry median of 30.4%, 10.5%, and 3.7%, respectively, implying decent fundamentals. On the valuation front, its P/B and EV/Sales multiple for TTM stands at 0.7x and 0.9x which are lower than the industry median of 4.1x and 7.4x respectively, indicating an undervalued position at the current level.

Hence, considering the aforesaid facts and current trading level, we give a “Speculative Buy” recommendation on the stock at the current market price of $0.440 per share.


Comparative Price Chart (Source: Thomson Reuters)   
 

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