Another health care service provider enjoying strong structural and legislated demand tailwinds.
About 15 years’ ago there was a listed radiology company called Gribbles which came unstuck because the radiologists working for Gribbles one day woke up and realised that they were pretty unique and rare creatures and that they possessed all the bargaining power. It also happened that those radiologists were somewhat materialistic and wanted to be paid more. With little choice, the company acceded to their ongoing demands until it could no longer afford to do so, at which point those greedy radiologists simply took their knowledge and went elsewhere.
While ways to retain critical staff in these kinds of high, and rare, IP service companies have evolved over the past decade and IDX claim to have thought through this issue and have put in retention structures, this is clearly still the number one risk to this business.
Acquisition will be the growth vector for the company and, having just acquired meaningfully, they are probably going to have to digest that latest acquisition before going again.
And the balance sheet might need some time to repair itself, because Net Debt-to-EBITDA is a little over 2 times. As such, a capital raising might be on the cards, probably in conjunction with the next substantial acquisition they make.
With valuations of ~11x EV/EBITDA and ~18x P/E, the stock is not overly expensive given the resilience of demand and the optionality.
INVESTMENT CONCLUSION: LOW-RISK, MODEST RETURN
IDX Price at posting:
$3.05 Sentiment: None Disclosure: Not Held
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