Medical device distributor, Lifehealthcare Group Ltd (ASX: LHC) has seen its share price soar by 17% in early trading today, after issuing an upbeat profit update.
Lifehealthcare says it expects to beat its first half 2014 financial year net profit after tax and amortisation (NPATA) prospectus forecast by 19.5%, thanks to an increasing number of surgeons using Lifehealthcare's implant products, and increasing penetration of its products with both new and existing surgeons.
Capital equipment sales also saw strong growth, across the cardiology, operating room and neurophysiology channels. The company says it expects these trends for both implantable devices and capital equipment to continue, building on strong growth in the 2014 financial year, and the first half of 2015.
Earnings before Interest, Tax, Depreciation and Amortisation (EBITDA) margins also improved in the first half, from 16.8% to 17.5%, while net profit grew by 28% to $4.1 million. Lifehealthcare had forecast net profit after tax of $3.4 million for the six months to December 2014 in its prospectus.
Those improved results also come despite the falling Australian dollar. Lifehealthcare imports much of its products, and can be negatively impacted by the falling Australian dollar. As a consequence, the company hedges much of its exposure and appears to be able to pass on those differences to customers.
Shares in the company had fallen from above $2.30 in early November to around $2.00, most likely as a result of the Australian dollar falls against the US dollar and other currencies. Investors clearly got their investment thesis wrong, with shares trading above $2.40 in the lead up to lunchtime.
Lifehealthcare is a company I highlighted as dirt cheap when it listed back in December 2013. At the time, the company was being offered to investors at a price of $2.00 per share, representing a P/E ratio of just 11.7 times and expected to pay a fully franked dividend yield of 6.9%. Thanks to today's spike, the trailing dividend yield is hardly exciting at 3.1% but given the reported growth, I fully expect the company to increase its dividend when it officially reports in February.
Even after today's spike shares may be cheap, trading on a prospective P/E ratio of 12.4x.
