ACL deals in all types of pathology: all routine pathology...

ACL deals in all types of pathology: all routine pathology tests, advanced pathology, First-trimester screening, and Non-Invasive prenatal testing, Chemical pathology, Haematology, Histopathology, Immunology, Serology and microbiology, Functional pathology, Commercial drug and alcohol testing.

@ IPO, they had:
995 collection centres + 86 accredited laboratories.

On 15/11/2021, they acquired Medlab pathology - 2 labs + 288 collection centres in NSW & QLD for 70m$.

They also have 30 specialist skin cancer clinics - diagnosing approximately 15% of all reported melanomas in Australia in FY21.

They are 3rd biggest pathology company in Australia. Biggest is Sonic [SHL.ax] and 2nd biggest is Healius [HLS.ax]

Before IPO, they invested 80-90m$ in their own tech for unification of their labs - national unified pathology system.
- so they acquire new labs/collection centres and then use their own tech in those centres for unification.

Healius is going to unify their system - in their last report they flagged that such a system will cost in excess of 80m$.



In the 3-4 years preceding IPO, ACL was unifying systems, acquiring labs and making them work etc - as a result they were not profitable. They had a loss in FY 18 & 19.
- I am assuming that when they had their first profit in FY20, they got pushed by their majority shareholder - Crescent Capital Partners for IPO.
Why do I believe that? Because the IPO was mispriced. There is no way this company should be so cheap. More of this below.
- I think Crescent Partners also realise this because they released a letter on 21/12/21 that they will not sell their shares anytime soon. And that was the day when the shares were trading at $6 - which is 50% above the price they were very happy to sell only 6 months prior!!



The IPO was priced @ 15 times profit for CY2021.
Why did they used CY2021 rather than FY2021?
- coz ACL was in transition at that time and was not making much profit.
- they thought by estimating profit for 2H CY2021 they are getting a good deal - only issue was they seriously underpriced it because the profits are coming thick and fast!
- If they had waited 6 months for IPO and then priced ACL @ 15 times profit for CY2021 - the IPO would have been priced at: [115 + 40 m$ ] * 15 /202 million shares: $11.5 rather than 4$!!!


Current EV: @ 5.07: 1025.7 + around 200m$ debt [includes debt for Medlab pathology acquisition] - 100 m$ of cash + hard assets + inventories~ 1130m$

They are going to have around 115m$ profit for 1H FY2022 so at that rate they are trading at: 1130 / 115*2 = 4.9!!

Most of their income comes from Medicare - that means whatever happens they will not have bad debts or their income wont decrease even if there is slowdown or recession - its pretty much all medicare funded.

Covid means there will always be an extra source of income for pathologies - more variants will come and people will always get scared and will run for tests.
Rapid tests will never have 100% accuracy - anyone have a positive will go to a pathology for "real" test.

Australians are getting older - that means more usage of pathology.

All in all there is no way this should trade at 4.9 PE.

Both HLS & SHL are trading close to 12 PE - both are ASX listed so all 3 should trade similar.

ACL have a dividend policy of 50-70% fully franked. I think they will give out 60m$ out of the 115m$ of profit they are going to declare next month which comes out to 30 cents or 6% fully franked dividend yield. No other company comes close.

Medium term the valuation will catch up to HLS & SHL and this should trade close to 10$ even if there is some reduction in covid testing.

PS: Its my biggest holding EVER - dont think I will ever come close to this much conviction in a share ever. Seems like a no-brainer to me.