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Valuation of $0.600
stale
Added 3 years ago
FY 21 Results released today. Revenue $231.7M (up 1.7%). NPAT $8.3M. These numbers aren't very impressive at face value but I believe there is a success story hidden here. This company is not widely followed on Strawman (deservedly). Paragon Care has had a woeful recent history with multiple acquisitions causing distress to the bottom line. I believe they have passed the bottom and have turned the business around for the following reasons: 1. Multiple businesses have been amalgamated and organised into four (4) divisions Devices, Diagnostics, Consumables and Services. 2. All vendor earnouts from prior acquisitions have now been paid from cash flow ($15.3M in FY21) which will boost the cash flow in FY22. 3. Debt reduction is now a prioritised with gearing currently at 36%. 4. Dividend payments now recommenced after a long pause with 1c FF declared for FY21 (41% pay out ratio). A lot of the financial pain from prior years is still disguised the FY21 results (ie the $15.3M in FY21 earnouts will go straight to NPAT offset by $3.5M in Jobkeeper payments). Income from Services and Consumables divisions has been impacted by COVID in reduced access to hospitals and aged care facilities. I see large growth in these divisions for FY22. Paragon care only have a very small market penetration in all divisions (2% Services to 7% Consumables) so there is plenty of capacity for organic growth. Board policy is to pay 40% to 60% of future earnings in dividends. Current PE = 12.2 which is fair but with extra cash in FY22 and even without organic growth I can see the 12 month share price at $0.72. Discount 15% for safety margin =$0.60. I see PGC as a good opportunity for anybody chasing cash flow with significant short term SP growth as the market catches up. DISC: I own in SM and IRL portfolios.
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#ASX Announcements
stale
Added 3 years ago

Key highlights

  • New 3-year bank facility with NAB
    • New covenants support future growth, acquisition opportunities and dividends*
    • Annual savings of $575k per annum
  • Improved operating performance
    • EBITDA in Q3 of $6.4m
    • FY21 YTD EBITDA up 79% to $21.2m

***

Has been on my watchlist but high debt has been (and remains) an issue.  There's nothing in this announcement that would encourage me to invest either.  I don't think a company in their position should be looking at either M&A or dividend payments.  Maybe look at share buybacks but better yet, retire some of that debt.  The trading update is ok but nothing spectacular either.

[Not held]

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#Broker/Analyst Views
stale
Added 3 years ago

09-Mar-2021:  Taylor Collison: Paragon Care (PGC): Restructure Has Quickly Improved Financials

Analyst:  Campbell Rawson, crawson@taylorcollison.com.au, +61 415 146 725, www.taylorcollison.com.au

  • Recommendation: Outperform
  • Price Target: $0.32 - $0.39
  • Share Price:  $0.245 ($0.24 on 12-Mar-2021)

Restructure Has Quickly Improved Financials

Our View:

We remain attracted to PGC on a valuation basis as it currently trades on 6.0x our FY21E EV/EBITDA, a 45% discount to the average of listed peers. Despite notable Covid-19 headwinds, 1H21 results show the restructure has quickly improved cashflow, working capital and earnings. We believe operating risk has declined and continue to be attracted to short-term tailwinds including the unwind of elective surgery backlog and increased access to aged care facilities. Given PGC’s debt forgiveness continues until September, we assume no repayments and forecast a net cash increase of $20.0m in FY21. We see debt covenant renegotiation as a formality and believe the reduced operating risk remains to be priced in. Our price target increases in line with our view PGC fair value is 7-8x EV/EBITDA with the expectation of double-digit EBITDA growth post Covid-19 to drive a further re-rating.

Key Points:

  • 1H21 operating EBITDA of $11.7m, up 29% on pcp
    • After removing the $3m JobKeeper benefit, PGC delivered EBITDA of $11.7m, up 29% on pcp and representing a margin of 10.2% a 30bps increase on FY20 levels. We see this as a reasonable result given the significant impact Covid-19 had on the business in Q1. Lockdowns in VIC in particular halted all elective surgeries and access to aged care facilities across the country was unfeasible. Margin was impacted by a change in revenue mix as sales of higher end devices slowed (due to in-person training being required for users) and lower margin PPE sales filled the gap. Despite this, EBITDA in Q2 was $7.2m in a difficult market which bodes well for future periods once elective surgeries ramp up again and aged care facilities become accessible. The benefit of ~$7m of annualised cost savings will flow through in H2 with further (cost and revenue) synergies likely to be generated as a result of a more cohesive management structure and stable ERP operating platform. Given medical supplies are required in line with the service provided, there is little opportunity for ‘catch-up’ from lost revenue and subsequently we have lowered our FY21 revenue forecast by 3% to account for Q1 softness.
  • Total Communications provides opportunity for rapid growth
    • PGC’s Service and Technology revenue fell 34% in the half as its Total Communications (TC) business was unable to access aged care facilities. TC provides aged care facilities with an integrated system including telephony, nurse call, CCTV, Wi-Fi and room access control to improve safety and operations. Findings of inadequate safety and care from the aged care Royal Commission are helping to drive change and with existing relationships with many of Australia’s largest aged care providers, TC is well positioned to benefit. TC is a lean operation with all staff being project managers and a network of contractors utilised to deploy hardware. Fixed service contracts are in place and ensure TC is profitable, irrespective of current activity levels. We understand there is a current backlog of ~15 projects which once aged care facilities re-open, will see earnings grow.
  • Operational improvements making debt covenant negotiations easier
    • PGC’s debt obligations remain on hold with NAB until September ’21. We anticipate covenant renegotiations to be a formality with the understanding our FY21E ND/Equity (44%) and ND/EBITDA (2.3x) forecasts fall within current covenant levels. Operating cashflow improved $24m in H1 and all but $1m of vendor conditional payments remain after $14m was paid in the half. The significantly improved trading performance (despite headwinds), tighter working capital controls and our forecast net cash increase of $20m all contribute to our view that we see minimal risk in PGC’s capacity to service debt moving forward.

--- click on the link at the top for the full TC report on PGC ---

[I do not hold PGC.  Too much debt.  It could easily bring them down, in my opinion.  Too much risk of permanent capital loss, for me.  Could be a high risk, high reward play for people with a suitable risk tolerance.]

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#Risks
stale
Last edited 3 years ago

Was glancing over paragon care. At first glance I have to admit it currently looks like a tempting opportunity. After a terrible couple of years the market cap is a measly $62.5 million with around $230 million in sales and ~40% gross margin. 

Covid has lead to widespread disruption especially to elective surgery but efforts to catch up the waiting lists over the coming 12 months could mean a surprising rate of recovery and potentially growth in not only revenue but margin. 

It is a fairly simple thesis. The previous roll up strategy seems well and truly abandoned and the company under new managment is rationalising costs and consolidating the fragmented business. 

However, low insider ownership and the company's debt worry me enough not to put on a position.

Whist I think there is potential for significant upside I think there is also a reasonable chance of the debt holders ending up owning the majority of the company or simply there being unimpressive business performance moving forwards leading to opportunity cost. 

I'll probably keep an eye out for insider buying.

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Valuation of $0.335
stale
Added 4 years ago
Giving an EV/EBITDA multiple of 4 Would need a significant discount to this, or signs of a recovery before I'd be tempted to add again to my scorecard.
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Valuation of $0.570
stale
Added 5 years ago
Purchase price of the recent REM acquisition is a little high in my opinion at ~7x EBITA plus potential earn-outs. I'd hope the company now focuses on both the integration of acquisitions but also reducing debt. Price forecast presumes success on both counts. 12/2/19 Disappointing update which results in my valuation reducing ~50% to 57 cents. This business could become a takeover target
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