What’s behind Paragon Care’ strong earnings?

  • February 23, 2021 02:32 PM AEDT
  • Tribhuwan
    Tribhuwan
    Author Tribhuwan
    47 Posts

    Tribhuwan is an Analyst at Kalkine Media Pty Ltd. He writes on financials, consumers products, fast-moving consumer goods, emerging companies, and economic policy. In these areas, he also covers global businesses. He is a graduate in BCom (Hons) from...

What’s behind Paragon Care’ strong earnings?

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Summary

  • Cost rationalisation initiatives have delivered strong results during the pandemic, while JobKeeper payment also added to strong earnings. 
  • The company seeks to return towards profitable growth from FY22. It has a target EBITDA margin of 15%.   

Paragon Care Ltd (ASX:PGC) has reported improved profitability and cashflows. The medical device company has released first-half FY21 results. 

It has been working on a cost rationalising strategy over the last year. As a result, the company delivered $7 million through initiatives in inventory, facilities consolidation, and freight management. These savings were in addition to $3 million JobKeeper payments in Q1 FY21. 

While revenue fell 5% to $115 million, its EBITDA was up 63% to $14.7 million. Paragon said marketing and travel expense cuts added to the gains in EBITDA. Overall, it expects cost savings to be sustainable, but travel expenses would increase as the economy re-opens. 

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During the half-year, the company also paid $14.3 million in earn-outs related to previous acquisitions. Cash flows would improve from the second half because only $1 million is left in vendor conditional payables. 

Cost initiatives taken by the firm are also delivering reduced working capital cycle and improved cash management. In H1FY21, the company had a working capital cycle of 133 days, down 28 days from 161 days in the same period last year. 

Net profit after tax improved by 271% to $5.2 million from $1.4 million. At the end of the period, the company had cash of $26.6 million and net debt of $76.3 million. 

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Paragon Care has been aggressive in its acquisition. It had completed 17 acquisitions between FY15 and FY18. Earning contribution is also diversified across products and services. During the half-year, the company’s revenue rose in devices and diagnostics but fell in capital & consumables and service & technology.

Paragon Care expects flat revenue in FY21 and growth in FY22. The company has an EBITDA margin target of 15% and gross margins of over 38% from 2H FY21. The Board remains committed to paying dividends, and a dividend reserve was created for the resumption of dividend payments. 

PGC shares were trading at $0.26, down 3.7%  on Tuesday.

 

 


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