Paragon Care is a Mohnish Pabrai Dhandho play.
Heads I win, tails I don’t lose much.

Due to a large capital raise to fund acquisitions and markets scepticism of both rollups and EPS accretion shares currently trade on less than 10x FY18 forecast earnings.

Acquisition integration & debt are two major risks. Short term risk of second half FY18 revenue and earnings miss due to large acquisitions and increasing seasonality of business. 

Paragon is a health care equipment and consumables distributor. Based in Melbourne, supplying ANZ health and aged care.

Gross margins ~39%, EBIT margin ~13%.

Thematic tailwinds, proven management, low multiples and expected solid growth provide an excellent opportunity for market trouncing returns. My target is a double within two years with 20 percent downside risk. Good potential for long term hold.

Paragon has been led by co-founder Mark Simari since 2007. In January Mark transitioned to head of mergers and acquisitions and Andrew Just was brought in as new CEO. Chairman and co-founder is Shane Tanner, who also chairs Zenitas. Directors all have some skin in the game but are less than 1% holders. Top 20 hold around 55 percent.

Earnings are underpinned by long term contracts for consumables, that comprise two-thirds of Paragon’s revenue.

Organic growth likely via both geographical and portfolio expansion. Acquisitive growth also likely to continue but should take a year to digest recent acquisitions which were purchased in 5-6x EV/EBITDA range. Operating leverage shown by opex falling from 41% in FY13 to 27% in FY17.

FY18F Net Debt to EBITDA ratio of 1.4x is undemanding.