Capitol Health Limited

CAJ Details

Operational Highlights: Capitol Health Limited (ASX: CAJ) is a provider of diagnostic imaging and related services to the Australian healthcare market. The company owns and operates clinics throughout Victoria and New South Wales. CAJ has improved cost efficiencies through cost saving measures in 1HFY21. The company is optimising its assets for revenue growth. The company has witnessed an increase in Diagnostic Imaging (DI) revenues due to additional MRI licenses in FY20. Moreover, community clinic sites and bulk billing revenue stream remained a robust income source. 

Appointment of Non-Executive Director: CAJ has reported on 23 June 2021 that Ms Laura McBain has been appointed as a Non-Executive Director in the company with effect from 1 July 2021. 

1HFY21 Financial Highlights: CAJ has registered an increase in its top line to $85.30mn in 1HFY21 against $80.55mn in 1HFY20. The company has registered a significant increase in its bottom line to $6.23mn in 1HFY21 against $2.69mn in 1HFY20, mainly due to lower operating cost. The cash balance has been improved to $19.04mn as on 31 December 2020 against $13.76mn as on 30 June 2020. The company has seen its total liabilities increased to $121.59mn as on 31 December 2020 against $118.26mn as on 30 June 2020.

Revenue trend (Source: Analysis by Kalkine Group)

Key Risks: The company is exposed to technology risks. Therefore, obsolete technology or technological failure may impact the business of the company. The company is exposed to adverse foreign exchange prices, which may impact the financials of the company.  

Outlook:  CAJ is focused on delivering growth for revenue and operating EBITDA in the future. The company continues to invest in operation systems and communication optimisation. The company expects to improve the cost-to-serve of the business. CAJ is likely to explore any acquisition opportunities with its strong balance sheet for growth in the future. 

Valuation Methodology: EV/Sales based Relative Valuation Method (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 CAJ gave a return of ~5.88% in the last three month and a return of ~30.90% in the last six months. The current market capitalisation of CAJ stands at ~$364.97mn as of 29 June 2021. The stock is currently trading above the average 52-weeks’ price level range of ~$0.202-~$0.395. On the technical analysis front, the stock has a support level of ~$0.30 and a resistance of ~$0.39. We have valued the stock using the EV/Sales multiple-based illustrative relative valuation method and arrived at a target price with a correction of low single-digit (in % terms). We believe that the company can trade at some discount as compared to its peer median, considering an increase in non-current liabilities as on 31 December 2020 and also taking into account the that the company has been trading at a discount in the past 3-years over its peer median. For this purpose, we have taken peers like Total Brain Ltd (ASX: TTB), Healius Ltd (ASX: HLS), Sonic Healthcare Ltd (ASX: SHL). Considering the significant increase in income tax expenses, decent stock price movement in the past few months, current trading levels, and valuation, we give a “Sell” rating on the stock at the current market price of $0.36, up by ~1.408% as on June 29, 2021.

CAJ 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.

Technical Indicators Defined: -

Support: A level where-in the stock prices tend to find support if they are falling, and downtrend may take a pause backed by demand or buying interest.

Resistance: A level where-in the stock prices tend to find resistance when they are rising, and uptrend may take a pause due to profit booking or selling interest.

Stop-loss: It is a level to protect further losses in case of unfavourable movement in the stock prices.

Disclaimer - This report has been issued by Kalkine Pty Limited (ABN 34 154 808 312) (Australian financial services licence number 425376) (“Kalkine”) and prepared by Kalkine and its related bodies corporate authorised to provide general financial product advice. Kalkine.com.au and associated pages are published by Kalkine.

Any advice provided in this report is general advice only and does not take into account your objectives, financial situation or needs. You should therefore consider whether the advice is appropriate to your objectives, financial situation and needs before acting upon it.

There may be a Product Disclosure Statement, Information Statement or other offer document for the securities or other financial products referred to in Kalkine reports. You should obtain a copy of the relevant Product Disclosure Statement, Information Statement or offer document and consider the statement or document before making any decision about whether to acquire the security or product.

You should also seek advice from a financial adviser, stockbroker or other professional (including taxation and legal advice) as necessary before acting on any advice in this report or on the Kalkine website. Not all investments are appropriate for all people.

The information in this report and on the Kalkine website has been prepared from a wide variety of sources, which Kalkine, to the best of its knowledge and belief, considers accurate. Kalkine has made every effort to ensure the reliability of information contained in its reports, newsletters and websites. All information represents our views at the date of publication and may change without notice.

Kalkine does not guarantee the performance of, or returns on, any investment. To the extent permitted by law, Kalkine excludes all liability for any loss or damage arising from the use of this report, the Kalkine website and any information published on the Kalkine website (including any indirect or consequential loss, any data loss or data corruption). If the law prohibits this exclusion, Kalkine hereby limits its liability, to the extent permitted by law, to the resupply of services.

Please also read our Terms & Conditions and Financial Services Guide for further information.

On the date of publishing this report (referred to on the Kalkine website), employees and/or associates of Kalkine do not hold interests in any of the securities or other financial products covered on the Kalkine website.