What: Having risen only 9.6% since its launch – unusual for a 2013 IPO – Lifehealthcare Group Ltd's (ASX: LHC) results today show there might be something to get excited about.
Better market penetration and a wider range of products on offer also look likely to generate further growth in the future once the usual costs associated with an IPO are left behind.
Highlights:
- Sales revenue rose 13.4% to $87.2 million
- Underlying EBITDA rose 8% to $15.3 million
- Net Profit After Tax rose 7.5% to $7.2 million
- Net debt down to $20.3 million (from $24 million at 30 June last year)
- Final dividend of 7.5 cents per share
- Targeting further market expansion in three main channels; Spine/Neurosurgery, Orthopaedics, and Cardiology
- 12-month hedging program and 7-month inventory stocks allow significant protection from currency risks
So What?
According to management, profit growth lagged revenue as a result of increased sales of low-margin 'capital equipment' and introductory price offers for new products that have now returned to normal levels.
Lifehealthcare's strategy going forwards will be to further advertise its presence in the market and use its highly trained sales staff to generate sales to key specialists in each of the three channels.
Ideally initial sales will lead to follow-up orders in the future, and much of this depends on the quality of Lifehealthcare's product, its sales staff, and its supply chain.
Investors should bear in mind that Lifehealthcare is essentially a sales company, and management admits that its future success depends 'to a significant extent on the performance and expertise of key staff' and the ability to retain them.
Efficient administration, ordering systems and customer support will help both with staff and customer retention and a continued focus on these factors will be valuable, particularly as total sales grow.
Now What?
The annual report was short on details regarding future developments and results, noting that the company was presently focussed on consolidating its operations to ensure an effective operating model.
This is normal following an IPO, and management does note that it expects a reasonable year-on-year increase in its results for FY2015.
With an unhealthy, ageing population, Australian demand for medical services is expected to grow significantly over the next decade or more, and Lifehealthcare investors should enjoy steadily rising sales even before the company's plans for expansion.
With its current modest valuation – not even 10% above its IPO price – Lifehealthcare represents a value purchase for the long-term shareholder.
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Trading on a similar valuation to Lifehealthcare, this small company enjoys even more rapid growth without the handicaps of post-IPO expenses and consolidation.
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