Straws are discrete research notes that relate to a particular aspect of the company. Grouped under #hashtags, they are ranked by votes.
A good Straw offers a clear and concise perspective on the company and its prospects.
Please visit the forums tab for general discussion.
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.
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
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:
--- 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.]
Key highlights
***
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]