Having not been interested when this business came up many years ago, single product (nurse call) and a small player in big space seemed like a long shot. I am taking a second look at what is now a very different business and one I now have an interest in.

Company

Austco has an increasingly established global position in providing nurse call and clinical communication systems into hospitals and aged‑care built through a combination of product development and acquisitions. Its flagship platform is Tacera, an IP‑based nurse call, workflow and communication system with RTLS, mobile apps and integrations; Medicom is its lower‑cost, conventional nurse call line.

Thesis

A decade long management team with reasonable skin in the game (4.9%) have grown the business to this point, having managed that growth and challenges (incl Covid) well, indicating a long-term view to increase value. Share count has grown significantly but so to has EPS and the share price reflecting strong TSR justifying the dilution by adding shareholder value.

Their international footprint provides them a very large market opportunity, but a competitive one, so plenty of growth is available provided they maintain a strong competitive offering to customers, which they have to date. A strong cash position is available to add to their success in acquisitions and augment reasonable ~10% organic growth so there is capacity and capability for continued growth at or above 10%.

Value ($0.48 - $0.65)

Provided these conditions remain in place they warrant a PE of at least 15-20 and so the current PE of 10 on FY26 expected earnings is an opportunity (note valuation model below is bearish on FY26 PE at 13). Sales growth currently convers to NPAT at around 10% about double a few years ago and likely to reach closer to 15% with additional scale, showing further operating leverage on offer. Adding organic and acquired growth to a business that has a good cash position and strong positive operating cash is an attractive combination to the operating leverage with both earnings and multiple rerates on offer.

On what I see as reasonable sales and NPAT% targets for FY30 of $140.6m & 14.2% I get a current value (10% discount) of $0.48 (PE 15) to $0.65 (PE 20) on assumptions of just organic growth. Hence conservative assumptions and good value relative to the current $0.33 price, provided they continue to execute as they have done for the last couple of years.

Market Efficiency

Austco is in it’s third year of ~40% sales growth, profitable, positive cash and cashflow, so why is it on sale? I believe that current market conditions and uncertainty have their part, but also the growth is complex, a mix of acquire and organic but also when looked at by halves or by geographic regions it is very lumpy. FY25 organic growth was mid-single digit so the impressive 40% total sales growth was almost entirely acquired and a large portion of FY26 growth is going to be acquired also, but the company is indicating 10-14% organic growth which I think the market is waiting for proof of. 

Margin direction is uncertain they have been flat or trending down slightly due to high margin software is becoming a lower portion of sale and the recent G&S Tech acquisition adds a lower margin business. The movement of NPAT due to tax expense between FY24 and FY25 distorts what is a clear PTB increase year over year, so profit growth doesn’t screen well.

There have also been few recent announcements of large contract wins (or any news out of the company for that matter) and their order back log was last presented at the half year results 3 months ago and was down to $47.2m from at high of $55.8m just after the G&S Tech acquisition. So, I suspect investors see no news as bad news given previous strong news flow on good news…

Conclusion

So maybe the market is right and things have turned/flattened, or it’s just a lumpy sub-scale sales business which will deliver over time but require investor patience at times (18-month sale cycle). I am betting that the market (most investors) doesn’t have patience and so the current price is an opportunity and as always, we will find out in the coming years.

Half weight position, keeping powder dry should current uncertainty and low multi-bag potential change, bought recently.

Disc: I own RL