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The Paragon Care Ltd share price leaps 8% on booming profits

The Paragon Care Ltd (ASX: PGC) share price rose 8% to $0.88 this morning, after the company released its annual report for 2017. Here’s what you need to know:

  • Revenue rose 25% to $117 million
  • Net profit after tax (NPAT) rose 35% to $10 million
  • Earnings per share rose 11% to 6.2 cents per share
  • Dividends of 3 cents per share
  • Total borrowings of $37 million
  • Cash at bank of $18.5 million

So What?

Another strong year for Paragon, with improvements in performance across most important metrics, including net debt, inventory turnover, and margins. Paragon hit its target range of between 5-6 times inventory turnover for the first time this year, reflecting improving sales that is reflected in earnings.

Likewise, earnings before interest, tax, depreciation and amortisation (EBITDA) margins improved from 13% to 14.6%, just below management’s target of 15%. Revenue of $117 million is well shy of management’s $250 million target. This means that Paragon appears to have plenty of room to grow revenues, although it may not be able to generate much more profit per $1 of sales. As a result, revenue growth could become one of the more important indicators of the company’s growth in the future.

The general improvement in Paragon’s business could also presage an uplift for peer Lifehealthcare Group Ltd (ASX: LHC), which reports on 22 August.

Now What?

Paragon kept its dividend payout ratio low at 49% of NPAT so it can reinvest profits for growth, and keep debt at modest levels. The company has several opportunities in the works, including its MIDAS e-health software that the company expects to roll out more widely in financial year 2018. Paragon also expects to see significant organic growth in its Electro Medical preventative maintenance and service business.

Paragon continues to look modestly priced compared to its opportunities, and I expect the company could be a strong performer over the next few years.

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Motley Fool contributor Sean O'Neill owns shares of LifeHealthcare Group Limited. 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.