Medica Group Plc (LON: MGP): Business Overview

Medica Group Plc is a Health Care Equipment & Service company providing Teleradiology services. The company presently offer three services to hospital radiology departments which includes Routine plain film (Routine PF), Routine cross-sectional (Routine CS) and NightHawk.

Recent News
On 23^rd March 2020, the company announced a strategic partnership with Qure.ai to develop AI tools for prioritisation and improved efficiency of radiology scan workload.

Market and Trading Update - FY2019

(Source: Preliminary Report, Company Website)

In the fiscal year 2019, the company’s revenue grew by 19.4 per cent to GBP 46.5 million as compared to GBP 38.97 million in the fiscal year 2018 due to increased sales during the period. Gross profit increased by 16.6 per cent to GBP 22.25 million in FY2019 against GBP 19.08 million in FY2018 while gross profit margin stood at 47.8 per cent in FY2019.  Adjusted EBITDA increased by 9.2 per cent to GBP 13.03 million in FY2019 against GBP 11.94 million in FY2018 while adjusted EBITDA margin stood at 28 per cent in FY2019.  Adjusted EPS grew by 4.6 per cent to 8.13p in FY2019 versus 7.75p in FY2018.

The Group reported that it was not able to determine the current impact of COVID-19 on revenue growth for the current year and it was difficult to forecast the financial impacts. However, there was a reduction in NightHawk cases of 30 per cent as people self-isolate themselves. The Group would provide updates as the situation improves and some recovery in the business witnessed.

Share Price Performance  

Daily Chart as on 25^thMarch 2020, before the market closed (Source: Thomson Reuters)

On March 25, 2020, at the time of writing (before the market close, at 10:48 AM GMT), Medica Group Plc were trading at GBX 115.30, down by 2.29 per cent against the previous day closing price. Stock’s 52 weeks High and Low are GBX 168.50/GBX 88. 

Valuation Methodology

*Peers: Integrated Diagnostics Holdings Plc, Animalcare Group Plc and Advanced Medical Solutions Group Plc

Conclusion
The company has delivered a decent financial performance during the first half of the fiscal year 2019. There are some principal risks and uncertainties which could impact the overall business of the company. Failure in maintaining clinical quality could hamper the reputation of the company. Significant competition in the industry could affect the revenue and profitability of the company. Any disruption in technology could affect the overall business of the company. The company has delivered double-digit revenue growth in the past years. It continuously focuses on providing high-quality clinical services to its customers. The company is investing in infrastructure and technology, which would support its future growth. The company is focusing on optimising the business for future growth. It remains well-positioned in the fast-growing teleradiology market.

Based on the above factors and supported by valuation done using the above method, we have given a “Speculative Buy” recommendation at the current price of GBX 113.25 (as on 25th March 2020 at 11:36 AM GMT) with lower double-digit upside potential, based on 15.58x NTM Price/Earnings multiple (approx.) on FY20E earnings per share (approx.).
 

Immunodiagnostic Systems Holdings Plc : Business Overview

Immunodiagnostic Systems Holdings Plc (LON: IDH) is a health care equipment & services company, providing the diagnostic solution to the clinical laboratory market. The company is engaged in the business of developing, manufacturing and innovating automated immune analyser technologies and immunoassays.

Recent News
On 21^st February 2020, the company announced that its Non-Executive Director, Peter Williamson, had acquired 5,000 ordinary shares in the company at an average price of £2.24 per Ordinary Share.

Financial Highlights – H1 Financial year 2020

(Source: Preliminary Report, Company Website)

In the first half of the financial year 2020, driven by an increase in revenue from Automated Business and Technology Business for the period, the company’s revenue stood at GBP 18,791 thousand versus GBP 18,495 thousand in the first half of the financial year 2019. Due to decline in cost of sales for the period, the company’s gross profit increased to GBP 8,411 thousand in the first half of the financial year 2020 versus a gross profit of GBP 7,892 thousand in the first half of the financial year 2019. The company’s adjusted EBITDA stood at GBP 2,857 thousand in the first half of the financial year 2020 versus an adjusted EBITDA of GBP 1,893 thousand in the first half of the financial year 2019, reflecting an increase of 49 per cent for the period. Due to lower operating expenses for the period, the company reported an operating profit of GBP 642 thousand in the first half of the financial year 2020 versus an operating loss of GBP 223 thousand in the first half of the financial year 2019.

Share Price Performance  

Daily Chart as on 25^thMarch 2020, before the market closed (Source: Thomson Reuters)

On March 25, 2020, at the time of writing (before the market close, at 8:00 AM GMT), IDH was trading at GBX 175, with no change against the previous day closing price. Stock’s 52 weeks High and Low are GBX 290/GBX 160. 

Conclusion
The group is exposed to the effects of political and economic risks, including the impact of Brexit, as the market expects macro-economic uncertainty or downturn in the UK economy as a result of Brexit. Global political uncertainty regarding trade policy also poses a risk for the group, including protectionist measures and regulation or legislation in local markets. The company’s revenue is impacted by increased competition in the healthcare sector. In the first half of the financial year 2020, the company’s Manual Business performance has declined because of one-off order in FY2019, while the company expects its performance to improve in the second half of FY2020. The company is focusing on higher growth markets, through M&A and has achieved significant growth in the past. The company remained cash generative in the current financial period due to focused investment prioritisation, and tight financial management approach opted by the company. The company prospects are looking good and it could provide an attractive opportunity to invest in the long term.

Based on decent fundamental prospects, we have given a “Speculative Buy” recommendation at the closing price of GBX 175 (as on 24th March 2020).
 
*All forecasted figures and information have been taken from Thomson Reuters.
*The “Speculative Buy” recommendation is also valid for the current price as on 25^th March 2020. 

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