1ST ASX Valuations, page-3

Lodge have updated their valuation - would you believe..........


Business update
The company currently operates across approximately 9,800 sites which covers optometry,
pharmacies, vet/pet services as well as general practitioners (GPs), dentists and hospitals.
Notably, 1ST only holds a 3.4% market share of the latter group and it’s in this sector where
we expect to see major growth. The company has enjoyed a strong customer retention rate
of 96%.
1ST recently signed three landmark deals with Medibank, Benestar Group and St. Vincent’s
Health Australia. Through Medibank, the initial target is their extensive network of dental
clinics enabling their 2.8m members to book with these providers, whilst Benestar is
sponsoring around 2,600 psychologists to come onto the MyHealth1st platform. St. Vincents
is introducing 1ST’s product to the vast number of specialists in their network. These deals
are anticipated to accelerate the previous 2,000 site per annum growth rate to what we
anticipate to be an additional 5,000 sites this financial year.
1ST has recently indicated that it has increased its average fee per site to $130 per month and
average products per site to 1.48. It is currently in the process of upselling its existing
customers while any new sites will begin on the new fee. The total addressable market for all
these revenue streams is estimated by the company to be valued at $1.9bn in Australia alone.
Valuation
We initiate coverage on 1ST with a speculative buy and have placed an initial valuation of
$0.38 on the company using a Discounted Cash flow Method (DCF), mainly based on the
number of sites increasing significantly throughout the year due to the recent deals with
Medibank, Benestar and St. Vincents. Beyond the current financial year, we assume a 20%
yearly growth in the number of sites which is more conservative than the historical growth
figure of 43% CAGR. We have used a WACC of 16.49% using a beta of 2.42. We believe the
number of sites 1ST is currently servicing will increase from 9,800 to nearly 15,000 by end
FY20. This is dependant on recent landmark deals helping to increase growth in number of
sites over and above the historical CAGR.