Like wg159 said, there is big potential in rollups of physio / and podiatry businesses. We disagree on how much of that Healthia can capture though.
One of the most important aspects which I think I have mentioned before is the prices that they can acquire new clinics, and their ability to fund this through very cheap debt. Take for example the 5 clinics that they mention their acquisition of at the half yearly results.
They generally have 20% DA. Leaving 80% EBIT (hopefully this can improve over time with synergies as you mention).
763.424 EBIT purchased using debt at their interest rates (from memory I calculated them to be around 5.0%, could be wrong) a total of 3936K cash. 3936 * (5% interest rate - 2% inflation) = 118.08 REAL costs per year.
Giving us a 6.4+ EBIT/Real interest cost per year ratio, which is insanely good metrics.
The market is incredibly fragmented, and some other businesses (e.g ASX:ZNT) were doing extremely well before they were taken over in this area. So there is massive room to grow for the business, as also shown by the acquisition costs.
Now lets turn to the absolute position of the business. In the prospectus you can see that the EBITDA forecast is 10.269 million, adding on the 1187 (this is undiluted) gives ~11500K EBITDA. Or we can just do the undiluted numbers.
Page ii of the prospectus. (We do have the issue of just how accurate these numbers are, but we will consider the reputation of Wes, Glen etc later). 9.0M FY19 EBITDA attributable to shareholders, add 763.424 gives us 9763.424K attributable EBITDA, soon to be closer to 10100K attributable EBITDA after the latest acquisitions.
EBIT to EBITDA ratio is about 0.8 likely to stay roughly similar I would imagine (page 7 of the prospectus). (More corporate consolidation on the upside, downside is having to integrate new clinics etc). This gives us 8080K EBIT attributable to shareholders. This is looking pretty cheap for ~54M market cap. Net debt is probably only around 15-16M at this point giving a cost of 800K nominal interest which is basically not a problem at all.
I think this business should be valued at more like $1.30+ than $0.87 given these numbers.
The prospectus numbers look accurate and make sense, however I understand if you don't want to take a risk based on them.
Now lets have a think about the more qualitative aspects.
1. Given the nature of these rollup / clinic style businesses, they do have an advantage in that they can close under performing stores and areas and move on to others. This reduces fragility significantly. 2. Majority of the shares are in escrow for 24 months, bodes well for locking the directors to longer term performance. 3. I don't have a problem with them being very profit focused, all larger chains get like this eventually and its just par for the course. I understand that they will be considered second rate in some ways to other podiatry clinics, but this can change over time as their efficiencies win out. 4. There is an oversupply of graduates, so treating them as expendable is rational (sorry to say, and its a bit sad but its true). 5. Proven performance of Glen Richards and Wes Coote in Greencross, other directors / managers have built their businesses up from the ground and know what is going on. 6. Big skin in the game with large shareholdings AND 24 month lockup as previously mentioned for mgmt and directors. 7. Clinic class shares provide owner incentive to stay with business for a while etc, I know this has been criticized but I think it is decent. 8. Have their own supply business and other interesting things too (DBS Medical, iOrthotics) for synergies and reducing costs. 9. Very large potential industry, massive fragmentation and inefficiencies.
HLA Price at posting:
86.0¢ Sentiment: Buy Disclosure: Held
