On 14 January 2019, Australia’s leading provider of diagnostic imaging and related services, Capitol Health Limited (ASX: CAJ) announced the acquisition of a network of 4 clinics in metropolitan Melbourne from Uniradiology. Despite this news, the share price of the company plunged by 3.774 percent as on 14 January 2019 (AEST 1:59 PM).
The four clinics acquired by the Capitol are highly complementary to the Capitol’s existing network. These clinics are extending Capitol’s reach into Carlton (with proximity to major Melbourne Public and Private Hospitals). Currently, the company is having its clinics in Victoria, Tasmania, and Western Australia and after this acquisition, the company will also have clinics in Frankston, Dandenong, Boronia, and Carlton.
Capitol Health is currently involved providing diagnostic imaging and related services to the Australian healthcare market, and these acquired clinics are offering comprehensive radiology services including CT, Xray, Ultrasound, OPG, and Mammography which will complement the company’s current services. It is expected that these newly acquired clinics will support the company’s revenues in smaller existing locations. Further, the company is expecting that these clinics will contribute $6.3 million in the company’s revenue and up to $1.16 million in EBITDA on an annual basis (based on FY19 forecast).
The acquisition is expected to be completed in the third quarter of 2019 and it is expected that the acquired clinics will contribute to the full year FY 2019 result.
As per the announcement, the aggregate acquisition consideration is $8.1 million upfront on a cash and debt free basis, and the acquisitions will be funded from Capitol’s existing cash reserves and debt facilities. As per Capitol Health’s Managing Director, Mr. Andrew Harrison, this acquisition is another step forward to the Capitol’s disciplined growth agenda as it represents a consolidation and expansion of its existing Victorian network.
Earlier in November 2018, the company completed the acquisition of 2 clinics positioned in the South-West growth corridor of Western Australia (WA) which was a strategic step in the Company’s existing growth strategy.
For the financial year ended 30 June 2018 (FY 2018), the company reported revenue of $129.1 million and EBITDA (before transaction costs) of $24.2 million. At the end of FY 2018, the company had net cash of $8 million. During FY 2018, the company completed the acquisition of Radiology Tasmania Pty Limited and I-Rad Radiology. Further, the company opened two new clinics in Melbourne during FY 2018.
In FY 2019, the company is expecting its revenue to be in the range of A$148 – A$155 million and its Underlying EBITDA to be in between A$29 – A$31 million. Currently, the company is having Research and training partnerships with major teaching hospitals and universities. Also, the company has partnerships to provide various services to Chinese DI providers - offshore growth opportunities.
Meanwhile, in the past six months, the share price of the company decreased by 13.11 percent as on 11 January 2019. CAJ’s shares traded at $0.255 with a market capitalization of circa $208.39 million as on 14 January 2019.
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