Recently enteredPGC (in a small way) and have outlined some...

Recently enteredPGC (in a small way) and have outlined some thoughts on pros/cons of purchasefor comment. I’m not convinced it’s a smart move but have rolled the proverbial dice… Here is my summation of pros / cons. Notinvestment advice, just some musings IMO for comment.

PRO:

1. Positive Undertones to Recent Update

24-Jun said“..now receiving jobkeeper… and …solid improvement in May and June”. From this I take two things i) PGC must be cautious about receipt of JK payments so ATO doesn’t pursue them for repayments hence said we had a real and genuine expectation of subdued trading, and ii) they are actually performing well on the back of COVID generated demand. JK payments may also serve to improve margins / FCF in the short term by defraying (bloated) corporate costs?

2. Cost Out Should Increase Margins

Haveeffected $4m of annualized savings and a further $4m to go. However not all the cost savings achieved to date will hit FY20A (maybe a couple of hundred thousand as done late in the year)

3. Forward FY21 multiples look cheap?

PGC hasguided market to revenues of $220m. If they miss this, having provided guidance 6 days out from the EOFY it would be a travesty. Assume they grow FY21 revenues (based on increased purchases from hospitals inspired by CV-19, and that procedure rates pick up) and further assume GP margin increase (giving credit for full$8m cost out flagged), then take off OpEx (make your own assumption) EBITDA multiples start to look ?Make assumptions around Tax and Interest and PER sits well below market average too?

CONs:

1. Cheap or Poorly Managed?

Adding upjust a few of the acquisitions completed since the ImmunoH deal to now based onpublic statements suggests they have paid over A$160m in acquisitions (China P= 15 + 30.2, Total Comms = 27.5, RES Syst = ~50m, Surgical Spec = 32.4, Anaequip= 2.3m, Immuno = 8.5m). Current market cap is ~60m (SP = 17.5c and 338m SO). Is this one of the great plays in value destruction by mgmt. or is it undervalued? What they’ve paid for it in the past and what it is worth now are two unrelated questions IMHO…

2. Too Leveraged?

Using standard leverage ratios its D:EBITDA is on the high side? Hence the need to look to FY21 for value…

Do your own research / not investment advice

CC