Medica Group Plc

Medica Group Plc (LON: MGP) is a Health Care Equipment & Service company providing teleradiology services. The Company presently offers three services to hospital radiology departments, including routine plain film (Routine PF), Routine cross-sectional (Routine CS) and NightHawk.

On 1 April 2021, the Company will release its Annual Report.

Rationale for Valuation – Speculative Buy at GBX 117.00

• As per valuation metrics, EV/Sales multiple is currently lower than the Healthcare industry.
• The debt/equity ratio was 0.33x in H1 FY20, lower than the industry median. Hence, the Company is less leveraged as compared to the industry.
• The Company has decent fundamental metrics as it has maintained a Gross margin above 45% for the last three years.
• FY20 profits were in line with expectations, cash generation remained strong in 2020, and it continued to make significant investments. Therefore, it has made good progress.
• From the technical standpoint, 90-day RSI stood at 48.85, which is supporting the upside movement.

Key Risks

• The performance can be impacted with ongoing Covid-19 challenges which can disturb the cash collection, operational delivery, and transform the consumer behaviour.
• Also, the overdependence on technology can lead to loss of data and significant service interruptions.
• Moreover, the Company operates in a strict regulatory environment; any change in regulations or government policies could affect the company's overall business.

Trading Update (for the year ended 31 December 2020, as on 21 January 2021)

• In 2020, the Company saw strong cash generation, with gross cash of £13.9 million and net debt of £4.0 million at 31 December 2020.
• FY20 revenue is expected to be £36.8 million, which will be around 21% lower than the previous year.
• However, the Company expects strong gross margin and profits to be in line with the previous expectations, with adjusted net operating profit margins of approximately 14% for FY20.
• Further, it remains well-positioned to complete Global Diagnostics Ireland's integration as planned by the end of Q1 FY21.
• At the end of 2020, it had a partnership agreement with Sectra Ltd, which will deliver a new OACS (Picture Archive and Communication System) and expects to go live in Q1 FY22.

One Year Share Price Chart

 (Source: Refinitiv, chart created by Kalkine Group)

Valuation Methodology: Price/Earnings Approach (NTM) (Illustrative)

Conclusion

The Company has a strong liquidity position and is looking to expand geographically with new business lines and selective M&A in the mid to long-term period. Despite the lower FY20 financial results, the Company has made good progress with the new strategy and more investment (which underpin long term growth). It has launched a new website in September 2020 and increased engagement with staff and radiologists. It also made the first acquisition in the Republic of Ireland, with the first AI (Augmented Intelligence) solution into clinical reporting and launched the exciting FutureTech programme. Therefore, it remains confident about the long-term growth prospects. The stock made a 52-week low and high of GBX 88.00 and GBX 160.00, respectively.

Based on the decent growth prospects, and support from the valuation as done using the above method, we have given a “Speculative Buy” stance on Medica Group at the current market price of GBX 117.00 (as on 10 February 2021, before the market close at 8:28 AM GMT), with lower double-digit upside potential based on 20.49x Price /NTM Earnings (approx.) on FY21E earnings per share (approx.).

Yourgene Health Plc

AIM-listed Yourgene Health Plc (LON: YGEN) is a Manchester, the United Kingdom-based company, which provides the molecular diagnostics business.

Rationale for Valuation – Speculative Buy at GBX 12.33

• With the number of positive developments in the second half, the Company anticipates overall double-digit growth for the current year.
• For the next year, the Company expects revenue to be in excess of £25 million.
• In the current financial year, it also expects improvements in profitability, with expanding its geographic reach.
• The debt/equity ratio was 0.08x in H1 FY21, lower than the industry median. Hence, the Company is less leveraged as compared to the industry.
• On the liquidity front, the current ratio was 2.21x in H1 FY21, which was higher than the industry median. Also, the liquidity position stays strong, with the confidence to increase the investment for the future.
• From the technical standpoint, 14-day RSI stood at 34.00, which is supporting the upside movement.

Key Risks

• The widening demand-supply gap of skilled professionals can have detrimental consequences in 2020 and beyond.
• The global financial crisis can lead to a limited funding opportunity.
• Moreover, the Brexit uncertainties can lead to trade barriers, shortage of skilled labour supply, and currency volatility.

Trading Update (for the second half of the financial year to 31 March 2021, as on 8 February 2021)

• The Company witnessed stronger trading patterns in H2 FY21 against the H1 FY21, with an increasing range of growth opportunities in the next financial year, mainly in US markets.
• It expects full-year revenues to be in the range of £18-£20 million, representing solid year-on-year growth of the order of 10%-20%.
• The Company stated that significant profitability improvements anticipated in the current financial year are now expected to be realised in the next financial year.
• In H2, it also saw a number of positive developments, with expanded testing capacity in the Manchester facility.

One Year Share Price Chart

 (Source: Refinitiv, chart created by Kalkine Group)

Valuation Methodology: Price/Earnings Approach (NTM) (Illustrative)

Conclusion

During this pandemic, the Company expects double-digit revenue growth in the current financial year. It also expects to capitalise on several upcoming opportunities, due to expanding capabilities and partners. Meanwhile, H1 FY21 results demonstrated business resilience; however, it supported the UK with its Covid-19 test offerings, which eventually increased the revenue. Overall, the Board stays confident about the longer-term prospects of the Company. The stock made a 52-week low and high of GBX 7.00 and GBX 24.55, respectively.

Based on the decent growth prospects, and support from the valuation as done using the above method, we have given a “Speculative Buy” stance on Yourgene Health at the current market price of GBX 12.33 (as on 10 February 2021, before the market close at 8:18 AM GMT), with lower double-digit upside potential based on 45.16x Price /NTM Earnings (approx.) on FY21E earnings per share (approx.).

*All forecasted figures and Peer information have been taken from Refinitiv, Thomson Reuters.

*Dividend Yield may vary as per the stock price movement.

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