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Why Azure Healthcare Ltd looks a great buy at current prices

With 8,500 sites globally Azure Healthcare Ltd (ASX: AZV) is establishing itself as a progressive manufacturer and provider of clinical workflow management systems in hospitals and healthcare facilities. Its flagship product is Tacera and the company is busy broadening its range into related areas.

In Australia Azure has 50% of the aged care market and 35% of acute care. Initial installation (including software) prices per bed are approximately $4,000 in acute care and $700 in aged care. Once installed annuity style income is derived from service agreements, software upgrades etc. The major competitor in Australia is Hills Industries, although Azure’s range and quality is regarded as superior.

Having now established two manufacturing operations in the USA, Azure Healthcare is making inroads into the high growth North American markets. Take up rates have been promising and there is every indication the Americas will prove very rewarding for this company. In addition Azure Healthcare has operations in Asia and Europe and further growth can be expected in these regions.

In FY2014, Azure’s revenues increased by 40% and net profit 300% (off a low base). Presently selling at 48c, Azure is on a PE multiple of 23.5 – however this is no mature industrial stock, and I prefer to use the PEG ratio when looking at such a company (the PEG ratio is derived from dividing the price earnings ratio by the expected growth in earnings).

Using fairly conservative assumptions (no change in A$; offshore growth of 30%+pa; domestic growth of 12%pa; more comprehensive alliances / distribution arrangements and increased percentage of higher margin software sales from existing sites) – net profit can be expected to increase by 27%+pa over the next few years. If realised this places Azure on a current PEG ratio of .87 (normally anything below 1 indicates prospectively good value).

Another thing I like about this company is that both R&D and set-up costs are expensed rather than capitalised – this is a conservative treatment and relatively few companies do it. In my opinion Azure Healthcare has an attractive PEG ratio, no debt and strong growth expectations – all ingredients for a good buy.

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Motley Fool contributor Peter Andersen owns shares in Azure Healthcare Ltd

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