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Published 21 May 2014 08:58
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Photo: Erin Jonasson
Based on broker estimates the industries Life Healthcare services are valued at more than $11 billion.
Shares in Life Healthcare surged some 40 per cent shortly after listing on the ASX in December 2013, but a tapering off in recent months presents a buy opportunity as highlighted by Bell Potter analysts on Wednesday morning.

Making the company more attractive is its entry into the interventional cardiology market.

With an established position as a niche medical device distributor specialising across six medical channels with a significant emphasis on devices and instruments used in spinal surgery, this development will help to provide revenue diversification.

However, it is also to some extent complementary with the company’s existing exposure to the cardiac ultrasound market.

Life Healthcare operates across the prosthesis, device, consumables and equipment markets. Based on broker estimates the industries it services are valued at more than $11 billion. At the time of listing the company’s product mix was heavily weighted towards spinal surgery procedures, an area that is growing at an annual rate of 8 per cent. It is also an industry where professional local distribution is preferred by surgeons, and this works in Life Healthcare’s favour.

An exclusive agreement with Biosensors Interventional Technologies (BIT) to distribute its range of cardiology products over an initial term of two years was negotiated in April, and this provides Life Healthcare with exposure to a high end device market, in keeping with its traditional focus on niche areas.

BIT is a subsidiary of Biosensors International Group, the fourth largest interventional cardiology device company worldwide. It has been a leader in the development of products such as stents and catheters used by cardiologists.

Bell Potter highlighted Life Healthcare has not had to outlay capital to gain access to this lucrative market, and importantly the products it will be distributing haven’t previously been available in Australia. From its point of view the deal is structured in such a way that it contains little downside other than to fund a modest inventory holding.

Bell Potter is tipping the company to slightly exceed prospectus earnings before interest, tax, depreciation and amortisation forecasts of 15.3 million in 2013-14. The broker’s profit estimate of $18.8 million represents underlying earnings per share of 18.2¢, suggesting the company is relatively good value trading on a price-earnings multiple of 12.8.

A substantially higher dividend of 14¢ in 2014-15 is being forecast, representing a yield of about 6 per cent based on yesterday’s closing price of $2.33. The broker has a buy recommendation on the company with a 12 month price target of $2.60.