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HLA healthia limited

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$1.80

Thanks for your thoughts. I agree with your points. I've been...

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SimonGr

3,456 Posts.

947

21/09/21

15:32

Post #: 56240942

Originally posted by Lyzaqu: ↑
Assuming that you believe their estimates (which I do, but you'll have to do your own analysis of their cash flows etc to check this), I believe it is a good thing for healthia. This is for 3 main reasons.

1. Increasing size.
Increased size allows greater efficiencies in back office and acquisition teams just simply due to the economies of scale. When the business first listed it only had around 60million shares that IPO at $1.00. A measly 60 million market cap. This wasn't on the radar for many institutional investors. We have seen a few start to pick it up now, and with increased size I believe it will continue. This is what often happens with micro caps that have traction, as the size increases, so does the money inflow (especially once they do their DCF calculations on a few years of results). My ideal investment is one that can grow from a $50million cap to a $2000million cap and be in the ASX200. The extra buying power of the institutional and then index investors provides the final high price at to which you can exit.

2. Increased diversification.
We all know diversification is good for withstanding downturns and generating stable returns. So this acquisition is particularly good from that front with more exposure to underexposed regions. More clinics = more ideas, more data, more testing, more diversification.
One of the reasons I liked Healthia in the first place was that the clinics are quite independent from each other, with different clinic class ownership and teams and profit share calculations for each clinic. This means that they can see quite easily which ones are doing well and performing and which ones aren't. They then use these ideas from the good performing clinics to improve other clinics. If this fails, they have closed some clinics in the past which weren't sufficiently profitable.

3. Reduced overall gearing. Net debt going from 5x underlying NPAT down to 3.65x provides an improved balance sheet which can either be used to buffer the current potential downturn in economic conditions OR to further growth.

As we saw with the acquisition last year, it was the catalyst for the share price to double from $1.00 to near $2.00. I think we could potentially see a similar jump from this acquisition. Maybe from $2.00 to $3.00 or $3.50, which would STILL be undervalued in my opinion.

I think this is a stock that you can potentially aim to hold until it is in the ASX200.

GLTAH & DYOR.
Expand
Thanks for your thoughts. I agree with your points. I've been working on my own - see cut/paste below. Would appreciate any thoughts you have on these. Cheers, Simon

Thought/observations from pack
1
2 - Large acquisition - approx 50% revenue. Acquisition could be transformational eg. Similar to AX1 acquiring HYPE, giving them scale, talent and ideas.HLA should avoid the stock overhand that AX1 suffered as deal is mainly cash.
3 - Good complementary geographically fit. New clinics providing growth options via adding services to sites.
4 - Both Back in Mortion and Healthia experiencing 8-9% organic growth
5 - 7.15x EBITDA or 12.1x NPATA are full multiples … but with Clinic Classon better multiples, shareholders actually pay 12.7x NPATA!
6 - Acquisition is earnings positive … as HLA is trading on higher multiples (debt multiples actually decrease as part of deal).
7 - BIM has considerably higher EBITDA and NPATA margins. … BIM is a more profitably business than HLA. This is only partly due to HLA's public company overheads.
8 - Synergies are not discussed in the pack?
9 - Capital raising ratio is 1:2.7 … retail holders heaviliy diluted as only offered 1:4.3 (however the sock likely needs insto's to drive interest/demand from a wider range of investors).
10 - Strong board participation
11
12 Upside risks
13 - FY21 revenue impacted by Vic lockdowns. FY22 will be too, but once acquisition is completed, there should be few (if any) going forward.
14 - Provides sites and scale to improve revenue with infill of other offers.
15 - New growth opportunities via BIM's pilates, dieterics embrionic offers
16 - HLA could learn from BIM on how to becomes more profitable
17
18 Downside risks
19 - large acquisition integration issues (franchisee to employee).Likely to have at least a few problem franchisees.
20 - More lockdowns (surely not??!!)
21 - HLA may not be able to maintain BIM's historically higher profitability.

HLA Price at posting: $2.20 Sentiment: Hold Disclosure: Held

0 Great analysis

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