With healthcare macro environment staying resilient driven by strong demand, evolution in sustainable healthcare is continuing and this brings focus on three small-cap stocks in the sector expected to demonstrate potential gain in support from confidence on delivering as per guidance.
 

Zenitas Healthcare Ltd

ZNT Details
 
Strategic acquisitions and reaffirmation of FY18 EBITDA guidance: Zenitas Healthcare Ltd (ASX: ZNT) has entered into a binding agreement to acquire 100% of Agewell Physiotherapy at a cost of $4.8m. This will be funded 100% from existing cash reserves. The acquisition of Agewell represents around 5 times the projected FY18 EBITDA and the acquisition is expected to be completed in February 2018. Moreover, ZNT has entered into a binding agreement to acquire 80% of the Peninsula Sports Medicine Group (PSMG) at a cost of $7.5m. The transaction is expected to be completed in February 2018 with the four senior clinician vendors retaining a 20% equity interest. Additionally, ZNT has reaffirmed its market guidance for FY18 EBITDA of $13m - $13.5m prior to the Agewell and PSMG Acquisitions. Meanwhile, ZNT stock has risen 13.58% in three months as on January 11, 2018 and looks to be a good watch. However, the current trading levels look high and we give an “Expensive” recommendation on the stock at the current price of $1.30
 

ZNT Daily Chart (Source: Thomson Reuters)
 

Lifehealthcare Group Ltd

LHC Details
 
Reaffirmed FY18 guidance:Lifehealthcare Group Ltd.’s (ASX: LHC) FY17 gross margin fell by 3.9% due to exchange with the AUD to USD hedging rate reducing from an average rate in FY16 of 78c to an average rate in FY17 of 72c, largely led to the modest earnings growth. This was partly offset by operating expense management with a 3% improvement of operating expenses to sales ratio over the period. In FY17, the EPS on a NPATA basis was only marginally up year on year.
 

FY 17 Financial Performance (Source: Company Reports)
 
However, LHC has reaffirmed its FY18 guidance, and expects for a high single to low double -digit growth in revenue, underlying EBITDA and underlying NPATA EPS. This is due to FY18 Q1 trading in line with expectations and PL impact mitigation identified. Further, LHC expects to improve its FY18 gross margin year on year. As a result, LHC stock has risen 18.83% in three months as on January 11, 2018 and is inching towards its 52-week high level. We give a “Hold” recommendation on the stock at the current price of $2.65
 

LHC Daily Chart (Source: Thomson Reuters)
 

Paragon Care Ltd

PGC Details
 
Acquisition based strategy and FY18 outlook: Paragon Care Ltd. (ASX: PGC) has announced some key acquisitions, including two highly complementary businesses, Insight Surgical and Medtech Solutions, and Seqirus (CSL) Immunohaemotology business acquisition. These acquisitions will be funded using the company’s existing banking facilities and cash reserves. Moreover, in FY18, PGC expects the revenue to be between $125m – $135m, FY18 EBITDA to be between $18m – $19m and full year NPAT to be between $10.5m – $11.5m. In the 1H FY18, PGC expects the revenue to be between $52m – $53m, EBITDA to be between $5.2m – $5.7m and NPAT to be between $2.5m – $3.0m with earnings skewed to second half. Meanwhile, PGC stock has fallen 4.73% in three months as on January 11, 2018 and is trading at a P/E of 12.98x. This is because the one-off costs relating to the CEO transition program, establishment of the South Australian site, the restructuring of the capital equipment sales team to provide broader national coverage and the recent acquisition program have affected the bottom line of the business in the six months ending December 2017. As of now, we give a “Hold” recommendation on the stock at the current price of $0.805
 

PGC Daily Chart (Source: Thomson Reuters)

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