ACL (ASX) Why I think ACL is ridiculously cheap.

Originally posted by ASX_Lottery ↑

ACL deals in all types of pathology: all routine pathology tests, advanced pathology, First-trimester screening, and Non-Invasive prenatal testing, Chemical pathology, Haematology, Histopathology, Immunology, Serology and microbiology, Functional pathology, Commercial drug and alcohol testing.

@ IPO, they had:
995 collection centres + 86 accredited laboratories.

On 15/11/2021, they acquired Medlab pathology - 2 labs + 288 collection centres in NSW & QLD for 70m$.

They also have 30 specialist skin cancer clinics - diagnosing approximately 15% of all reported melanomas in Australia in FY21.

They are 3rd biggest pathology company in Australia. Biggest is Sonic [SHL.ax] and 2nd biggest is Healius [HLS.ax]

Before IPO, they invested 80-90m$ in their own tech for unification of their labs - national unified pathology system.
- so they acquire new labs/collection centres and then use their own tech in those centres for unification.

Healius is going to unify their system - in their last report they flagged that such a system will cost in excess of 80m$.

In the 3-4 years preceding IPO, ACL was unifying systems, acquiring labs and making them work etc - as a result they were not profitable. They had a loss in FY 18 & 19.
- I am assuming that when they had their first profit in FY20, they got pushed by their majority shareholder - Crescent Capital Partners for IPO.
Why do I believe that? Because the IPO was mispriced. There is no way this company should be so cheap. More of this below.
- I think Crescent Partners also realise this because they released a letter on 21/12/21 that they will not sell their shares anytime soon. And that was the day when the shares were trading at $6 - which is 50% above the price they were very happy to sell only 6 months prior!!

The IPO was priced @ 15 times profit for CY2021.
Why did they used CY2021 rather than FY2021?
- coz ACL was in transition at that time and was not making much profit.
- they thought by estimating profit for 2H CY2021 they are getting a good deal - only issue was they seriously underpriced it because the profits are coming thick and fast!
- If they had waited 6 months for IPO and then priced ACL @ 15 times profit for CY2021 - the IPO would have been priced at: [115 + 40 m$ ] * 15 /202 million shares: $11.5 rather than 4$!!!

Current EV: @ 5.07: 1025.7 + around 200m$ debt [includes debt for Medlab pathology acquisition] - 100 m$ of cash + hard assets + inventories~ 1130m$

They are going to have around 115m$ profit for 1H FY2022 so at that rate they are trading at: 1130 / 115*2 = 4.9!!

Most of their income comes from Medicare - that means whatever happens they will not have bad debts or their income wont decrease even if there is slowdown or recession - its pretty much all medicare funded.

Covid means there will always be an extra source of income for pathologies - more variants will come and people will always get scared and will run for tests.
Rapid tests will never have 100% accuracy - anyone have a positive will go to a pathology for "real" test.

Australians are getting older - that means more usage of pathology.

All in all there is no way this should trade at 4.9 PE.

Both HLS & SHL are trading close to 12 PE - both are ASX listed so all 3 should trade similar.

ACL have a dividend policy of 50-70% fully franked. I think they will give out 60m$ out of the 115m$ of profit they are going to declare next month which comes out to 30 cents or 6% fully franked dividend yield. No other company comes close.

Medium term the valuation will catch up to HLS & SHL and this should trade close to 10$ even if there is some reduction in covid testing.

PS: Its my biggest holding EVER - dont think I will ever come close to this much conviction in a share ever. Seems like a no-brainer to me.

Expand

"6% fully franked dividend yield" I meant 6% for half year and more than 10% for the whole year. That is to consider that there will be some reduction in covid testing.

No.	Vol.	Price($)
3	13660	$2.77

No.

Vol.

Price($)

13660

$2.77

Price($)	Vol.	No.
$2.83	8364	1

Price($)

Vol.

No.

$2.83

8364

No.	Vol.	Price($)
1	350	2.830
1	5320	2.780
2	3660	2.770
1	10000	2.760
4	4560	2.750

No.

Vol.

Price($)

350

2.830

5320

2.780

3660

2.770

10000

2.760

4560

2.750

Price($)	Vol.	No.
2.750	8	1
2.830	8364	1
2.840	3995	2
2.850	7260	3
2.860	9668	2

Price($)

Vol.

No.

2.750

2.830

8364

2.840

3995

2.850

7260

2.860

9668

(20min delay)
Last $2.82		Change 0.010(0.36%)		Mkt cap ! $553.8M

Open	High	Low	Value	Volume
$2.83	$2.84	$2.79	$1.873M	665.3K

Why I think ACL is ridiculously cheap., page-2

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