Capitol Health Limited (ASX: CAJ) is a provider of diagnostic imaging services like x-ray, ultrasound, Doppler, CT scan, Cone beam CT, computer tomography etc. The company provides its services to healthcare markets in Australia. Currently, the company is operating clinics in Victoria and New South Wales.
On 18 September 2018, the company announced that it has acquired 3 clinics in Melbourne and 6 clinics in Perth. These acquisitions are a part of the strategic step in the company’s existing growth strategy. The clinics acquired in Perth are covering a substantial part of the metropolitan area. These include Integrated Radiology, Booragoon Radiology, Ellenbrook Radiology, Forrestfield Radiology, Quinns Medical Imaging and Image central. With additional capital investment and targeted recruitment these acquisitions can help the business to grow. These independent clinics are acquired from 4 different vendors which could help the company to derive network benefits from the clinics. It is expected that these new acquisitions can contribute up to $16.5 million in revenue and $3.1 million in EBITDA in FY 2019.
This move thus marks the beginning of setting a footprint in Perth, which looks to be quite an attractive opportunity for the group. Primarily, the group has estimated that the new clinics may contribute $ 16.5 million in terms of revenue with $ 3.1 million in terms of EBITDA for CAJ on a yearly basis. This has been at the back of estimations done through FY19 forecast.
In a way, the group says that the estimations reflect EBITDA multiple of 5.5 x moving up to 6.5 x, subject to meeting respective earn out conditions. The group thus aims to report a strong full year FY 19 performance as the acquisitions will be completed and included in the FY 19 guidance. On the other hand, the group is progressing well on its buy-back program. The group has reported a solid 10% growth in operating revenue for FY18 and reported underlying EBITDA growth of 9%. Its acquisitions have been as per the strategic moves and find support from balance sheet strength. At the same time, the group is catering to cost reduction management and is also enhancing clinical governance.
On 18 September 2018, the share price of Capitol traded flat with intraday trading of 56690 shares. CAJ’s share was at $0.280 at a market capitalization of 225.67m as on 18 September 2018 (AEST 1:22 PM).
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