Paragon Care Ltd reports huge increase in sales and profits: Time to buy?

Paragon Care Ltd (ASX: PGC) has reported a 190% increase in revenues for the 2016 financial year (FY16) – and a 257% jump in profit after tax compared to the prior year.

Paragon Care supplies hospitals, medical centres and aged care facilities with a wide range of medical equipment and consumable medical products, including bedding, emergency trolleys, medical carts, stainless steel medical equipment, clinical refrigerators, ultrasound systems and even nurse uniforms.

Paragon’s closest ASX-listed comparable company is LifeHealthcare Group Ltd  (ASX: LHC) – which also distributes and supplies a range of medical products.

Here’s a quick summary of the results:

  • Revenues of $93.4 million – up 190% compared to FY15
  • Earnings before interest, tax, depreciation and amortisation (EBITDA) of $12.1 million (up 224%)
  • Net profit after tax of $7.5 million (up 257%)
  • Earnings per share (EPS) of 5.6 cents (up 75%)
  • Cash in the bank $19.1 million – although net debt stands at $19.0 million
  • Fully franked dividend of 2.2 cents

What does it mean for investors?

It was a decent result driven primarily by a number of acquisitions – that’s why EPS is only up 75% compared to net profit up 257%.

At the current share price of 70 cents, Paragon Care is trading on a P/E of 12.5x and paying a fully franked dividend of 3.1%.

What next for Paragon Care?

Essentially, more of the same. Paragon made a number of acquisitions in FY16 and has already completed a number of new acquisitions including MIDAS Software Solutions on July 8.

As long as debt stays in check and earnings per share grows, Paragon looks reasonable value, given the tailwinds in the healthcare sector. The one ever-present risk is a cut to medical benefits by the government – which investors should bear in mind.

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Motley Fool writer/analyst Mike King owns shares in LifeHealthcare. You can follow Mike on Twitter @TMFKinga

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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