Paragon Care Limited

PGC Details

 Improved Performance in Q3FY21 (March Quarter): Paragon Care Limited (ASX: PGC) is a marketer of medical devices, equipment, and consumable medical products to the aged care and health markets in Australia and New Zealand. As of 26 May 2021, the market capitalisation of PGC stood at ~$76.02 million. The company reported revenue of $58 million in sync with the corresponding prior period last year. PGC posted an EBITDA of $6.4 million in Q3FY21 vs $2.7 million in Q3FY20.

The company’s FY21 YTD revenue stood at $173 million, down by 3% year over year, owing to the disruption caused by COVID-19 outbreak. FY21 YTD EBITDA also increased to $21.1 million, up by 79% YoY due to the cost rationalisation drive. PGC generated more than $7 million in annualised savings and a lower cost base. The operating cash flow improved for FY21 YTD totalling $13.5 million versus FY20 YTD cash outflows of $1.7 million. PGC held a cash balance of $19 million as of 31 March 2021.

New Debt Facility and Covenant: The company reported a three-year extension of its banking agreement to July 2024 by way of new terms for business growth, resumption of dividends, and taking up acquisition opportunities. PGC paid off $15.3 million to vendors for business acquisitions in FY21 YTD and has no further payments due. Owing to this, it predicts a significant increase in free cash flows in the future. As of 31 March 2021, PGC had $101 million of debt on its balance sheet. PGC expects annual savings of $575k per year with potential savings, due to the new contract win.

Key Takeaways of 1HFY21: The company posted revenues of $115 million, down by 5% YoY. Its NPAT rose to $5.2 million, up by 271% YoY. PGC implemented a cost rationalisation program leading to a lower cost base structure.

Top-Line & Net Income (1HFY17-1HFY21); Analysis by Kalkine Group

Key Risks: The company faces the risk of changes in the demand for its products, regulatory and technological changes in the medical devices and equipment space. It faces the risk of limited access to aged care, hospitals, fall in demand for elective surgery due to COVID-19 restrictions.

Outlook: PGC expects revenue in sync for FY21 and growth in FY22. It estimated gross profit margins to be greater than 38% from 2HFY21. PGC targets an EBITDA margin of 15% over time. It will resume the debt amortisation from 1 July 2021. As dividend resumption is a priority, PGC has transferred HFY21 NPAT to dividend reserve consistent with its decision.

Valuation Methodology: EV/Sales Multiple Based Relative Valuation (Illustrative)

Source: Analysis by Kalkine Group 

*% Premium/(Discount) is based on our assessment of the company’s NTM trading multiple after considering its key growth drivers, economic moat, stock's historical trading multiples versus peer average/median, and investment risks.

Stock Recommendation: The stock of PGC gave a negative return of 9.43% in the past six months and a positive return of 26.31% in the past nine months. The stock is currently trading slightly higher than the 52-weeks’ average price level of $0.120-$0.315. We have valued the stock using the Enterprise Value to Sales based illustrative relative valuation method and have arrived at a target price of low double-digit upside (in % terms). We believe that the company can trade at some slight discount than its peer average, considering its lower revenue for Q3FY21 and YTD21 on pcp, Uptick in debt-to-equity ratio on pcp and the risks associated with the pandemic causing business disruptions, reduced demand, and limited access to aged care. For this purpose, we have taken peers like Regis Healthcare Limited (ASX: REG), Sigma Healthcare Limited (ASX: SIG), and others. Considering the current trading levels, increased EBITDA in Q3FY21, improved EBITDA, positive operating cash flows in YTDFY21, expected annual savings, improved working capital management and lower cost base, valuation, and given risks of COVID-19 led business disruption and changes in the demand for PGC’s products, we give a ‘Speculative Buy’ rating on the stock at the current market price of $0.240, up by ~6.666% on 26 May 2021.

PGC Daily Technical Chart, Data Source: REFINITIV  

Monash IVF Group Limited

MVF Details

Key Takeaways from 1HFY21 Results: Monash IVF Group Limited (ASX: MVF) is a provider of assisted reproductive services (ARS) and women’s imaging and diagnostic services in Australia and Malaysia. As of 26 May 2021, the market capitalisation of MVF stood at ~$335.08 million. On 3 May 2021, MVF notified ASX that BlackRock Group now holds 48.04 million shares with 12.32% voting power in MVF. The company posted revenue of $90.77 million, up by 17.8% YoY in 1HFY21. This increase was due to the growth cycle stimulated in Australia, growth of Ultrasound services and day surgeries. 

MVF reported an NPAT of $14.55 million, up by 78.5% YoY for 1HFY21. MVF declared a fully franked interim dividend of 2.1 cents per share for 1HFY21.

MVF’s net leverage ratio reduced to negative 0.02x with ROE improved to 6.5% in 1HFY21 on pcp. Its interest coverage ratio improved to 11.9x in the reporting period. The company reduced its gross borrowings by 12.2 million and net debt by $4.7 million during 1HFY21. Its post-tax net operating cash flows stood at $20.8 million, up by 92.6% YoY in 1HFY21. MVF held a cash balance of $7.6 million as of 31 December 2020.

P&L Highlights, 1HFY20-1HFY21; Analysis by Kalkine Group 

Key Risks: The company faces the risk of peer competition and low demand for elective surgeries due to the continuing threat of the COVID-19. It witnessed lower revenue (due to lower volumes, border, and clinic closure) from its international business, given the impact of the COVID-19 restrictions on the Malaysian economy.

Outlook: MVF expects NPAT in the range of ~$23.7-$25.7 million for FY21 versus $11.8 million in FY20. It expects NPAT before excluding non-regular items between $21-23 million versus $14.4 million in FY20.

Valuation Methodology: EV/Sales Multiple Based Relative Valuation (Illustrative)

Source: Analysis by Kalkine Group 

*% Premium/(Discount) is based on our assessment of the company’s NTM trading multiple after considering its key growth drivers, economic moat, stock's historical trading multiples versus peer average/median, and investment risks.

Stock Recommendation: The company set 10 March 2021 as the record date and dividend payable on 7 April 2021. The stock of MVF gave a positive return of 13.83% in the past three months and a positive return of 15.28% in the past six months. The stock of MVF gave a positive return of 48.36% in the past nine months. The stock is currently trading higher than the 52-weeks’ average price level of $0.500-$0.925. The stock of MVF has a support level of ~$0.803 and a resistance level of ~$1.001. We have valued the stock using the Enterprise Value to Sales based illustrative relative valuation method and have arrived at a target price with a correction of low double-digit (in % terms). We believe the company can trade at some premium than its peer median, considering the increase in earnings, NPAT, net cash flows from operating activities, reduced net debt for 1HFY21 vs 1HFY20. For this purpose, we have taken peers like Healius Limited (ASX: HLS), Healthia Limited (ASX: HLA), Atomo Diagnostics Limited (ASX: AT1) and others. Considering the high trading levels, decent returns in the past months, decent business performance in 1HFY21, and valuation, we suggest investors to Book Profit and give a ‘Sell’ rating on the stock at the current market price of $0.905, up by ~5.232% on 26 May 2021.

MVF Daily Technical Chart, Data Source: REFINITIV 

Note 1: The reference data in this report has been partly sourced from REFINITIV.

Note 2: Investment decision should be made depending on the investors’ appetite on upside potential, risks, holding duration, and any previous holdings. Investors can consider exiting from the stock if the Target Price mentioned as per the Valuation has been achieved and subject to the factors discussed above.

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