24 June 2016 Paragon Care Ltd (PGC) Guidance Update Pending...

24 June 2016
Paragon Care Ltd (PGC)
Guidance Update Pending
Recommendation
Buy (unchanged)
Price
$0.61
Target (12 months)
$0.80 (unchanged)
Analyst
John Hester 612 8224 2871
Authorisation
Tanushree Jain 612 8224 2849
Expected Return
Capital growth 31.1%
Dividend yield 3.0%
Total expected return 34.1%
Company Data & Ratios
Enterprise value $122.3m
Market cap $97.6m
Issued capital 159.9m
Free float 100%
Avg. daily val. (52wk) $137,000
12 month price range $0.52 - $0.75
GICS sector
Healthcare Equipment and Services
Disclosure: Bell Potter Securities acted as lead
manager and underwriter for the company's
August 2015 $42m Placement and Rights Issue
and received fees for that service.
Price Performance
BELL POTTER SECURITIES LIMITED


Acquisitions Continuing to Deliver
PGC has previously indicated its intention to update FY16 guidance towards the end of
June. Our unchanged forecast for FY16 EBITDA is $11.7m (FY15: $3.7m) with the
vast majority of earnings growth driven via acquisition.
PGC’s revenues are heavily skewed towards the defensive, non discretionary end of
the market. 70% of its revenues are now derived from medical consumables with the
remainder being capital equipment items. The customer group is widely dispersed
across public and private hospitals, aged care and primary care.
Based on the positive language in the company’s most recent market statement (2
May 2016) we remain confident the company will achieve our FY16 earnings estimate.
Turning to FY17, the forecast 28% increase in EBITDA is primarily driven by the full
year impact of acquisitions completed in FY16. We expect a minimum of 5% to 6%
organic earnings growth over the medium term.
The dividend payout ratio is maintained at 40%, however, we expect a strong cash
flow result in 2H16 driven by reductions in inventory and debtors. We note the forecast
free cash flow yield is expected to exceed 9% in FY17. We do not expect the
company to increase its dividend payout ratio, rather excess capital will be re-invested
in subsequent acquisitions and further debt reduction.
Maintain Buy Recommendation and Price Target $0.80
Changes to earnings are not material and we retain our target price of $0.80. The only
changes to earnings flow from small adjustments to working capital which in turn
impact on net debt and interest expense. We expect a re-rating of the stock over the
coming months to reflect an EV/EBITDA multiple of 10x FY17 forecast earnings. The
short term catalyst for the re-rating will be the company’s guidance update.
Absolute Price Earnings Forecast
June Year End FY15 FY16e FY17e FY18e
Revenues $m 32.2 93.6 117.2 122.5
EBITDA $m 3.7 11.7 15.0 15.3
NPAT (underlying) $m 2.1 6.2 9.1 9.5
NPAT (reported) $m 2.1 5.2 9.1 9.5
EPS underlying (cps) 3.2 4.6 5.7 5.9
Norm EPS growth % 18% 45% 24% 5%
PER (x) 19.4 13.3 10.7 10.3
FCF yield (%) -1% 9% 9% 9%
EV/EBITDA (x) 33.1 10.5 8.2 8.0
Dividend (cps) 1.4 1.8 2.3 2.4
Franking 100% 100% 100% 100%
Yield % 2.3% 3.0% 3.7% 3.9%
ROE % 10.2% 8.7% 11.7% 11.4%
SOURCE: IRESS