Consensus community valuation
Austco puts out out their hand for a capital raise
Bell Potter are the underwriters.
Bell Potter also did the raise for Clarity Pharmaceuticals and only 33% took the offer.
I think this could head the same way. Extra 15m shares for retail OR Bell Potter has to buy up to 10m shares (going by the 33% using Clarity and an example) if retail do not take the offer.
I know comparing Clarity Pharmaceuticals and Austco is not an apples to apples comparison but I'm making the point that that retail right now doesn't have the stomach to tip money into the begging bowl unless there is very clear upside and synergies.
Sold on the pop on the morning
[not held].
@LifeCapital and @BendigoInvesto covered this, so I won't back over what they've written. Except to say that I was scratching my head at this result. The numbers just looked too good, and I couldn't get them anywhere near to adding up until I re-read almost to the bottom of their trading update:
Talk about burying the lead - a 5.6% increase in GM is huge! Much higher than anything they've done for at least 10 years. What is that? Is that Technocorp? I'd thought of Technocorp as strategically important, but of lower quality than the existing business. That isn't borne out by the numbers though:
So Teknocorp appears to be holding its own and then some. But the underlying business appears to have had a standout quarter as well. While I thought the 1H numbers were fair-to-good, I had expected a lot more given the growth in order book and commentary around impacts of COVID impacts easing. Q3 appears to have made up for that.
It's just as dangerous to extrapolate a good quarter as it is a bad one, but I'll do it anyway cause I'm a slow learner. Although they disclose NPAT, I'll focus on EBITDA because their tax is all over the shop. They are run-rating at almost $10 million EBITDA, which is an EV/EBITDA ratio under 6. Add a record order book and I'm a happy holder.
Nice, company continues to deliver.
Further acquistion should add to bottom line if costs can remain low.
What do they do?
Ausco develop software and hardware relating to healthcare communications systems, primarily nurse call and real time patient tracking systems, as well as re-sell and market complimentary systems.
They are also Systems integrators (nurse call and PTS installation contractors), through acquisitions, giving them sales channels into various geographic markets. It has achieved this primarily through acquisition, and is part of a strategy to enhance their direct sales channels in Australia, where systems integrators tend to have the customer relationships.
Financials
The business experienced significant disruption throughout FY 2021 due to COVID-19. Since then, revenue CAGR is 18%
Gross margins have remained relatively flat over the past 3 years at around 52%.
Profit margins have been in the range of 2-7%, noting the business has been profitable over the past 3 years.
Since H1 2022, software and software services revenue CAGR is 28% over the past 2 years, and is now 21% of total revenue. AHC has been developing its Nurse call and clinical comms platform Tacera,
Sales Pipeline: Sales pipeline has more than doubled to $44.4 million over the past 12 months, leading into H2. AHC revenue streams are seasonal, with H2 traditionally being the stronger half. The sales pipeline has benefited from the following recent acquisitions:
- Acquired Amentco (Integrator) for $10.6M (3.5 x 2023 EBITDA) - Feb. 2024
- Acquired Tecknocorp acquisition for $2.6M plus earnout (3.5 x EBITDA) - Sep. 2023.
- Present revenue value is annualising H1 revenue.
Share Price Performance
Share price has been in an upward trend since early 2019.
Valuation
Austco Healthcare Ltd is trading on a trailing PER of 24.5. However, given the strong pipeline into a seasonally stronger H2, I would estimate the forward PER is around 20, which appears to be reasonable value, assuming it can continue to grow at around 10-15% pa.
Ownership
The largest owners are:
- Former CEO / Founder: Robert Grey (19.2%)
- Aust. Ethical Investments (17.8%)
- Asia Pacific Holdings (18.1%)
The board is a lean one, with just 4 members
MD, Clayton Astles owns 1.1% of the company, and Brendan Maher (CFO) 0.85% . Other directors holdings of around $100-200k each.
AHC has some solid institutional investors, with reasonable inside ownership
Management Incentives
Short term incentives are based on pre-defined profitability, gross margins, and revenue financial targets. Non-financial are product development, process improvements, and Leadership and team contribution.
Summary
AHC strategy of rolling up integrators and re-sellers in Australia at about 3.5x EBITDA will juice revenue and hopefully profits over the next few years. The call option is it the re-sellers / integrators enable AHC to get their sticky Tacera platform on sites around the country. Once these systems are in, they are difficult to replace.
Presently, sales orders are exceeding the H1 2024 revenue run rate, indicating a strong H2 is ahead of us.
DISC - HELD
Austco has announced a $3.8 million contract win across two hospitals in Singapore.
They have also announced this has taken their order book to $40.7 million, up from the $38.7 million announced at the AGM last month. They've been on a bit of tear this year having more than doubled the order book since February this year.
Zooming out a bit the order book has been steadily rising since late 2019, apart from some COVID and supply chain impacts through 2022 and early 2023.
Nice to see at least one of my holdings kicking ass and taking names. I still think it flies under the radar a bit considering its history of profitable, non-dilutive growth. @Strawman have we spoken with Clayton?
Austco has come out with a roadshow presentation today, with lots of funky graphs and "buy me" arguments. Not a lot new, although they did disclose sales orders were up again from last month's record high to $37.2m - so they're filling the funnel faster than they can drain it. (Ignore the 'Revenue from customers' tag - revenue it ain't).
Austco is one of my more comfortable holdings. They disclose often enough to make you feel wanted, without getting all over-promotional. When they make investments in product or people they set realistic expectations about how long it will take to get a payback from the investment. They certainly appear to be in that zone of getting a return of previous investment right now though.
If I were being hyper-critical I'd say the CEO is very well compensated for a company of this size. However, Clayton appears to be getting the job done so I'll not quibble while that remains the case. It's arguably not a screaming bargain but if they keep growing at the rate they are it will look cheap soon enough. Happy to hold.
Pop in share price after AGM update
Would have been good if they had a slide that tracks their progress against competitors. Otherwise lots of content to take away and digest.
Still have watch position
[held]
Austco snuck in a price sensitive investor presentation this morning, which was an interesting decision given they released results less than two weeks ago (sans presentation). It came two days after a competitor, Hills Limited (HIL.ASX) announced they had been successful in bidding for the New Footscray Hospital tender in Melbourne. I'm not saying it was because of that. I'll leave that to others.
Largely it replicated what they they had already released with some swanky graphics added. It did give a little more detail about the growth investment being made in each region. One nice little new tidbit it shared was an increase in the order book to a record $24.7m. That's $2m higher than they had disclosed at the end of August and is probably what justified it being price sensitive.
[Held]
Essentially what you have here is a profitable, dividend-paying, growing, tech company in the Healthcare sector - they just need lithium and they've won Buzzword Bingo. All of that comes for bargain basement price of just $33m market cap.
Revenues are growing in the mid-teens but their margins have been under pressure - like every one else - from higher product costs and supply availability issues. However, they have largely offset the impact with more software revenue (higher margin) and sale of higher margin products.
It will be interesting what FY23 will bring with several offsetting impacts to weigh up. The company has flagged an investment in sales in FY22, but call out long sales cycles means the benefit of this won't be realized until FY24 onwards. Additionally we'll need to back out COVID assistance grants over the past two years.
Offsetting this is a strong order book and improved hospital access post normalization of COVID (get well soon Chagsy), which is being reflected in growing revenues. Normally we'd like to see order books growing over time but I think at this stage of COVID recovery it's a bullish signal that the order book appears to have peaked as it suggests normalization of access is real. This, plus the fact their revenue is growing much faster than the run off of the book, means it doesn't unduly concern me the order book may now be reverting to a more normal setting before it starts to grow again (it has grown to $22.7m since year end).
One thing I like about this company is they seem pretty straight forward and conservative. They call out issues they're seeing even if they may not be apparent from the numbers as there are offsetting 'good guys' or are yet to be reflected in the financials. They keep adjustments to a minimum and where they do use them it's to back out the impact of one-off grants and gains, rather than back out costs.
They raised capital in 2019 to invest in sales capacity and growth. What was pleasing is when COVID hit they didn't deploy it for this use or any other. They just sat on it. Now they're coming out the other side they can invest for growth at a time when a lot of other companies are bunkering down and trying to strip costs out.
Their future opportunity is to move into patient monitoring, including post-discharge, and patient engagement, including entertainment and food. This may require acquisitions with competition already heavily invested in this tech.
The declaration of a dividend is a moderately bullish signal for me. I'm not sure the last time they paid one but I don't think they have for at least 6-7 years.
Overall, I expect them to continue to steadily grow the top line with this accelerating in FY24 and beyond as growth initiatives being spent today bear fruit. It may be difficult to grow the bottom line at the same rate in the short term with ongoing margin pressures and investment in sales capacity. However, that operating leverage will come in time.
Based off a fairly conservative DCF.
[Held here and IRL - both underwater, which puts them in plenty of good company]
The latest investor preso (see here) warns shareholders of supply chain issues -- increased raw materials and transport costs, semiconductor shortages -- and says that management expect these pressure to last for the remainder of FY22, and possibly beyond.
This will impact margins, and has prompted the company to build up inventory. The business will also be investing in added sales resources. With $7m in cash, they are also on the lookout for acquisitions, particularly in Europe and the US.
Will be interesting to see how sustained these supply chain issues are, and whether there is much capacity to increases prices (i suspect not)
I think there's good scope for sales growth as they prosecute their record order book, but with ongoing investment and added costs it'll make profit growth more difficult.
