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.
AlphaAngle I hope you are right because I own the stock. The narrative is good but the implementation by the management has been very poor so far. My patience is running out and I will take my medicine if they don't put rubber on the road soon.
Analyst: Campbell Rawson - email: firstname.lastname@example.org - Ph: +61 415 146 725 - website: www.taylorcollison.com.au
We are attracted to PGC on a valuation basis as it currently trades on 5.7x our FY21E EV/EBITDA, a 41% discount to the average of listed peers. PGC is emerging from a restructure with a leaner cost base, more clearly defined strategy and subsequently an improved and lower-risk growth opportunity. Earnings prospects are buoyed by long-term medical technology industry growth of 4-5% p.a. underpinned by an ageing population and increasing life expectancy. Short-term tailwinds include the unwinding of a backlog of elective surgeries due to Covid-19 lockdowns and increased sales of PPE and Covid-19 test kits. PGC is a scale business in a highly fragmented market. We see opportunity for meaningful market share gains with the new management team focused on sustainable organic growth and we forecast ~15% EBITDA growth for the next two years.
Following Covid-19 economic impacts, PGC’s banking partners have removed existing covenant obligations and debt repayments until September ’21. However, with an FY21 forecast ND/E ratio of 55% and covenant re-negotiation on-going, we see debt obligation breaches as the most significant risk to the business in the short term. FY21 sees the end of earn-out payments for past acquisitions ($15m) and with an improved earnings profile, we expect FCF generation through CY21 to significantly reduce debt and therefore view breaches as a low-risk scenario.
--- click on link above (at the top) for the full TC report on PGC ---
[I do not hold PGC shares.]