GS upgraded IDX to a buy, TP $2.70 (as of the 5th November)Given...

GS upgraded IDX to a buy, TP $2.70 (as of the 5th November)

Given the adverse share price reaction, we provide updated analysis on IDX around:
(1) revenue trends; (2) margin profile and labour cost sensitivities; and (3) capital
position.
We cut our EBITDA/NPAT estimates for IDX by an average of 11%/28% respectively
through FY24-26E, and reduce our 12-month TP by 25% to A$2.70 (driven by
earnings changes/ mark-to-market multiples).
Notwithstanding a lower degree of confidence around the near-term margin profile
given persistent labour challenges, we reiterate our Buy rating on IDX based on:
(1) clear evidence of a revenue recovery underway (with both volumes and mix
tracking better than other HC services peers across our coverage); (2) our continued
view that IDX is attractively positioned to benefit from the structural shift to higher
acuity modalities (given specialists referral exposure); (3) ability to further push
through higher prices on select imaging tests (we see this as an additional growth
opportunity); (4) financial leverage should continue to organically improve; (5)
potential upside from M&A; and (6) IDX trades on 6.6x our forecast NTM
EV/EBITDA, its lowest level since mid-2017 and a c.30% discount to the LT ave.

Our valuation methodology is unchanged and remains based on:
IDX: Our 12-month TP of A$2.70 is based on 85% fundamental valuation of A$2.70
(NTM EV/EBITDA of 10.4x) and 15% M&A valuation of A$2.90 (multiple of 11.0x).

CAJ: Our 12-month TP of A$0.24 is based on 85% fundamental valuation of A$0.22
(NTM EV/EBITDA of 8.1x) and 15% M&A valuation of A$0.37 (multiple of 11.0x).