Paragon Care (PGC) AGM Update Drives Target Price Upgrade...

Paragon Care (PGC)
AGM Update Drives Target Price Upgrade
Recommendation
Buy (unchanged)
Price
$0.91
Target (12 months)
$1.06 (previously $0.96)
Analyst
John Hester 612 8224 2871
Authorisation
Sam Haddad 612 8224 2819
Expected Return
Capital growth 16.5%
Dividend yield 2.9%
Total expected return 19.4%



BELL POTTER SECURITIES LIMITED

Acquisitions performing ahead of expectation
The key message from today’s AGM was that all three acquisitions from October 2015
are now performing ahead of expectation. PGC’s growth strategy relies heavily on
acquisitions, hence it is pleasing to see that, once again, the recently acquired
businesses are performing ahead of plan.
The trading momentum established in FY16 has continued in 1Q17 with like for like
EBITDA up 12% and we believe the company is on course to meet our earnings
forecast for FY17.
The integration of Western Biomedical, Designs for Vision and Meditron is now
completed. The key aspects of the integration have included capitalising on cross sell
opportunities, replacement of back office systems and implementation of inventory
management systems, particularly at Meditron and Designs for Vision.
Further Acquisitions Await
The AGM presentation outlines the long term growth plans for the Group. The Board
aspires to revenues of $250m with a target EBITDA margin of 15% (implying EBITDA
of $37.5m). The company did not set out a time frame to meet this target, however we
expect it to be achieved within 3 years (i.e. by the end of FY19). PGC now has far
greater access to capital markets via both mainstream debt and equity markets to fund
future transactions. The reputation and experience of the executive team, led by the
CEO Mark Simari, continues to grow as now evident by the track record on the
execution of multiple acquisitions.
Maintain Buy, Price Target Upgraded to $1.06
Changes to FY17 earnings are immaterial. FY18 and FY19 earnings are upgraded by
5.6% and 8.0% respectively due to an adjustment in the forecast EBITDA margin.
Price target is raised to $1.06 from $0.96. We maintain the Buy rating.
Absolute Price Earnings Forecast
June Year End FY16 FY17e FY18e FY19e
Revenues $m 93.4 123.6 133.6 142.8
EBITDA $m 12.5 17.8 19.4 20.7
NPAT (underlying) $m 7.2 10.4 11.7 12.7
NPAT (reported) $m 7.5 10.4 11.7 12.7
EPS underlying (cps) 5.3 6.4 7.2 7.8
Norm EPS growth % 69% 20% 12% 8%
PER (x) 17.1 14.2 12.7 11.7
FCF yield (%) 4% 5% 9% 7%
EV/EBITDA (x) 13.5 9.5 8.7 8.2
Dividend (cps) 2.2 2.7 3.2 3.5
Franking 100% 100% 100% 100%
Yield % 2.4% 2.9% 3.6% 3.8%
ROE % 9.9% 12.8% 13.2% 13.2%