Are These Two Small Cap Healthcare Stocks Too Hot To Punt On – PGC, IDX?

Will these stocks sustain their YTD returns - PME, WEB, NEA? Pro Medicus Limited (ASX: PME) Healthcare Technology company, Pro Medicus Limited has returned a 51.25% year-to-date yield as on 12 April 2019. The stock has witnessed a positive performance change of attractive 122.29% over the past 12 months including 40.98% surge seen in the last three months. PME last traded at $17.310, up 0.64%, with a price to earnings multiple of 105.850x and a market capitalisation of $1.78 billion as on 12 April 2019. The robust performance of the stock underlines the company’s solid business model that provides radiology information systems (RIS) and enterprise imaging software to diagnostic imaging groups, hospitals and other related entities. For the First half of Fiscal 2019, the company reported after-tax profit of $9.082m, an increase of $5.888 million compared to the same period last year. During the period the Company continued to make substantial inroads into the North American market winning a critical $27.0 million contract with Partners Healthcare, the largest health system in the state of Massachusetts. Its revenue from contracts with customers for the 6 months of the company increased from $15.886 million to $25.315 million, representing an increase of 59.4%. Besides North America, the Group has witnessed a strong performance in its European business including the extension of the contract with a capital sale of $3.049 million with the German government hospital in November. Webjet Limited (ASX: WEB) Travel and tourism company, Webjet Limited has recorded a 45.89% increase in its stock price year-to-date including a positive price change of 34.23% in the past three months. WEB last traded at $15.820 with a price to earnings multiple of 38.380 x and a market capitalisation of $2.1 billion as on 12 April 2019. The company has operations through the Middle East, Europe, Asia Pacific and the Americas, connecting highly fragmented suppliers, hoteliers and travel retailers including travel agents, online travel agents, tour operators, and third party-wholesalers. Webjet’s Total Transactional Value for 1H FY19 increased by 29%, representing a 2% increase in B2C and a 65% increase in B2B. The increase in the directly contracted B2B inventory and greater cross-sell across B2C ancillary products has resulted in the Group’s revenue margin increasing by 25bps on the previous corresponding period. Adjusting for the impact of acquisitions, organic growth was 21% despite softness in the bookings due to the hot European summer. EBITDA before acquisition and integration costs increased by 42% and NPAT grew by 37% to $25.2 million in 1H FY19. Nearmap Ltd (ASX: NEA) Geospatial map technology provider, Nearmap Limited has achieved as high as 97.39% year-to-date return and the positive price change of 66.39% over the past three months. NEA last traded at $3.230, up 6.95%, on 12 April 2019. On the back of continuing improvement in US sales, Nearmap annualised contract value rose 42% to $78.3 million in 1H FY2019, compared to the previous corresponding period. Its global customer numbers increased to over 9,300 with group average revenue per subscription increasing to $8,410 during the half-year. The result demonstrates the favourable impact of the company’s expansion in product, technology and content with continued record US growth and a strengthening market leadership position in Australia. Nearmap has planned to launch new innovative products in the second half including 3D content visualisation through MapBrowser. It further aims to scale for a global opportunity and become the world’s leading provider of subscription-based location intelligence.

Paragon Care Limited

Paragon Care Limited (ASX: PGC) caters to the Australian and New Zealand medical equipment devices and consumables market. The ageing demographics, constant upgradation in consumer expectations and coupled with resilient government spending augurs well for the company. The company has positioned itself as a provider of advanced technology solutions with a bent towards recurring revenue stream in acute ancillary care environments.

The company recently appointed Mr. Bruce Bian as a Non-Executive Director to its Board. Bruce holds a law degree from the Sydney University and has broad experience across multiple facets of practice including Chinese and Australian relations. He also has over 35 years of broad industry experience, with a strong understanding of market trends in the Asia Pacific region. With this appointment, the company board now comprises of six directors, five of whom are independent non-executive directors.

The company reported a 9% growth in its organic revenue in 1H19 which was approximately two times the overall market growth. The gross margin and EBITDA margin (for continuing business) for 1H19 was at ~38% and 12% respectively. The Company declared a fully franked dividend of 1.1 cent. The strong sales performance was a validation of the company’s focus in 2018 to strengthen sales leadership. The company has begun the migration to Microsoft D365 single platform to standardise systems and process across the group. Benefits of the same anticipated from 1 July 2019 and expected cost reduction of upwards of three million in FY20. PGC maintains a positive outlook for continuing business is expecting to generate $240mn of revenue and $28mn of EBITDA in FY19. The total health care spends stands at $190 billion in Australia and New Zealand. The addressable market opportunity for Paragon is at about $9 billion.

The company is currently focusing on transformation to accelerate the integration. To meet the target, the company has refreshed its Board and Senior leadership team, invested in systems, divested underperforming business and kept a focus on deep cost out program. The company has identified Devices, Diagnostics, Capital & consumables, and services as key sales and marketing verticals.

The shares of Paragon delivered a negative return of 38.89%, 25.42%, and 4.35% in the past six months, three months, and one month respectively. It last traded at $0.450, up by 2.27% on ASX (as on 12 April 2019) with a market capitalisation of $148.34 million.

Integral Diagnostics Limited

Integral Diagnostics Limited (ASX: IDX) is a Melbourne based leading medical imaging services provider across Australia and New Zealand.

Dr. Ian Kadish is the Managing Director of the company, and he joined the company in May 2017. Previously, he held roles in CSC Healthcare, Mckinsey and Company, Netcare a South Africa and UK hospital group. He has also served as CEO and MD of Healthcare Australia and CEO and MD of Pulse Health Group.

The company delivered a solid set of numbers in 1H19, witnessing growth. In comparison to its 1H18 numbers, the company reported:  23.2 % growth in operating revenue, 40.5% growth in operating EBITDA, 34.4% growth in operating NPAT and 25.6% growth in EPS. The company delivered an industry-leading EBITDA margin of 23.4% in 1H19 vs. 20.3% in1H18.  This was possible due to the leveraging of the platform to drive cost efficiencies and revenue synergies. The company has also restructured its debt facilities. This has resulted in improved terms providing greater flexibility and lower cost of capital. It maintains a cash advance facility of $240 million and asset financing of $65 million.

In 1H19 company expanded its operations with the successful opening of facilities such as Miami Beach clinic, development of SJOG Hospital in Geelong, etc. Restructured radiologist remuneration and escrow arrangements, diversifying the radiologist shareholder base. On expenditure front, the company expects an additional cost in 2H19 due to radiologist recruitment. The normalised free cash flow conversion of 89.5%. The expected CapEx for FY19 is around $20 million. Replacement CapEx is around $12 million, and growth CapEx is around $8 million.

The Board has approved an on-market share buy-back of ordinary shares, which was scheduled to commence on 8th March 2019 and to end 12 months from the date of the announcement.

The IDX shares have delivered a positive return of 11.38 percent in the last year. It has delivered a return of 1.11 percent, 9.16 percent, and 3.40 percent in the past six months, three months, and one-month respectively. It last traded at $2.720 (As on 12 April 2019), down 0.73% from its previous close, with a market capitalisation of $430.36 million.


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