This morning Paragon Care Ltd (ASX: PGC) reported its half-year result for the six month period to 31 December 2017.
Paragon reported that the company's revenue was down 4.5% to $52.5 million compared to the prior corresponding period of the six months to 31 December 2016. Management said that revenue had been impacted by greater seasonality compared to the first half of FY17.
Operating expenses increased by 6%, or $1.1 million, to $15.6 million. Management attributed this increase to investing in future growth through new service & technology businesses as well as a restructuring of the sales team. The increase was also due to establishing a new South Australian warehouse and recruiting a new management team.
The decrease in revenue and increase in costs led to earnings before interest, tax, depreciation and amortisation (EBITDA) falling by 19%, which equates to $1.2 million fall.
The knock-on effect to earnings before interest and tax (EBIT) was a 24% fall and net profit after tax (NPAT) dropped by 24%.
Net operating cash outflow was $3.1 million due to investing in new hires for the service & technology business, the restructuring of the sales team and increasing the inventory by $4.9 million in anticipation of meeting strong demand in the second half of the financial year.
The company maintained the dividend payout at 1.1 cents per share.
Paragon re-iterated that it expects to deliver strong full-year earnings driven by organic growth and the recent acquisitions. Management expect the second half to be stronger due to the particularly seasonal revenues in this half-year. Revenue and earnings should be higher in the second half of the year given historical trends and the seasonal nature of hospital procurement.
Management maintained its FY18 revenue guidance of $125 million to $135 million and EBITDA guidance of $18 million to $19 million. It also provided pro-forma calculations of expectations for FY18 for the company after its equity raising.
Foolish takeaway
Paragon believes the healthcare industry will continue to provide a strong tailwind for its business. I'm inclined to agree and the current valuation of 10x management's estimated pro-forma FY18 earnings makes it seem good value in this expensive market.
Paragon has acquired a lot of businesses recently, so I'd like to see evidence that the integration of these is working well, such as profit margins increasing in the future reports. Plus, management will have to deliver a blockbuster second half to make up for the decline in profit in the first half, particularly on the operating cash side of things.
