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Paragon Care Ltd. shares soar on profit upgrade

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Shares of Paragon Care Ltd. (ASX: PGC) were higher by almost 10% in morning trade. This came after the specialist medical equipment supplier to hospitals, medical centres, and aged care facilities released its FY 2016 earnings update to the market.

The update revealed that Paragon Care expects full year revenue to come in 188% higher year on year at $92 million to $93 million.

On the bottom line things were even better. Management expects net profit after tax to come in between $6.4 million and $6.7 million. This would mean a huge increase of at least 200% on last year’s result of $2.1 million. On a per share basis this equates to 4.7 to 4.9 cents in earnings per share.

In addition to this Paragon Care intends to pay out upwards of 50% of its earnings as a fully franked dividend. At the current share price this would equate to an estimated 3.4% dividend. This may not be the biggest yield you can find on the market, but I do believe it has the potential to grow substantially in the future.

Paragon Care’s management put the solid result down to positive organic growth and successful integration of recently acquired businesses Western Biomedical, Designs for Vision, and Meditron.

Western Biomedical is the leading supplier of medical and surgical supplies to hospitals and specialists in Western Australia. Designs for Vision is a distributor for optometric and ophthalmic supplies and equipment. Lastly, Meditron is a leading ultrasound equipment provider.

I believe all three acquisitions have the potential to provide Paragon Care with growing revenue streams in the future, which in my opinion should help keep its bottom line and dividend growing for some time to come.

Being a small cap share Paragon Care may not be as widely known as sector peers Fisher & Paykel Healthcare Corp Ltd (ASX: FPH) and Ansell Limited (ASX: ANN), but I believe this result demonstrates that it has just as strong prospects as these two heavyweights.

According to CommSec, analysts are expecting this solid earnings growth to continue through to FY 2018 at least. So at just 14x FY 2016 earnings I think Paragon Care looks to be great value for a long-term investment today.

Rather positively the company has also found favour with brokers. Bell Potter recently slapped an 80 cents price target on its shares. With the shares currently trading at 70 cents this implies potential upside of a further 14% on top of today’s gains.

Overall I have been very impressed with what I’ve seen and think Paragon Care would make a solid long-term investment today.

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As of 2.11.2020

Motley Fool contributor James Mickleboro has no position in any stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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