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Zenitas Healthcare Ltd share price up 6% on its report

The Zenitas Healthcare Ltd (ASX: ZNT) share price has risen by 6% in reaction to the Zenitas Healthcare report for the six month period to 31 December 2017.

Zenitas is a small cap healthcare operator that provides home care, allied care and primary care to patients.

Below are some of its highlights compared to the prior corresponding period.

Management provided comparisons against the pro-forma 31 December 2016 figures as this is a more accurate and realistic comparison, as impressive as the statutory revenue growth of 1,600% sounds.

Net revenue increased by 53% to $34.8 million compared to the pro-forma revenue last year. This was driven by organic growth of 7.5% from company initiatives and also a number of acquisitions that it made during the half-year.

Earnings before interest, tax, depreciation and amortisation (EBITDA) increased by 51.5% to $5 million. Management said that the change in revenue mix due to acquisitions made the underlying EBITDA margin lower in this half compared to the second half of FY17. Home care margins are typically lower than other healthcare segments.

Zenitas has a long-term EBITDA margin target range of 15% to 17%. The underlying EBITDA margin, excluding $0.56 million of acquisition costs, was 15.8% in this half compared to 14.5% last year.

Management were pleased with the Dimple and Nextt Care acquisitions, with synergies being identified and acted upon. There was an increase in cross referrals with around 47% of patient referrals being retained in the financial year to date.

Earnings per share (EPS) came in at 2.64 cents per share and the company declared an unfranked dividend of 1 cent per share.

Zenitas said that its annualised revenue ‘run rate’ is $122 million, this calculation includes the Peninsula Sports Medicine Group and Agewell acquisitions. This compares to the current total revenue for the half-year of $34.8 million.

Management said that several potential acquisitions are at an advanced stage of due diligence. Zenitas expects to utilise its net capital raising proceeds of $28 million by June 2018, delivering between approximately $4 million to $6 million of pro-forma, annualised FY18 EBITDA. Management disclosed that the businesses in final due diligence are in the physiotherapy, home care and GP healthcare segments.

The company reaffirmed that it continues to review a significant number of acquisition opportunities and is highly discerning, focusing on pursuing high quality opportunities that meet the company’s strategic and financial criteria, ultimately delivering shareholder value.

Outlook

Based on the initiatives and businesses currently in place, Zenitas said that organic growth will be between 7.5% and 10%, which equates to ‘underlying’ EBITDA of between $13 million to $13.5 million.

In addition, Zenitas expects an EBITDA contribution of $1.5 million to $2.5 million from acquisitions completed in FY18, which will contribute annualised EBITDA of $4 million to $6 million.

Foolish takeaway

I thought this was a very encouraging report from Zenitas, particularly the organic growth of 7.5%. There is a good chance it can become a key healthcare player by offering lower-cost health outcomes for patients instead of going to the hospital.

If we just double the half-year’s EPS, Zenitas is trading 23x FY18’s earnings, but the second half could be stronger because management have forecast underlying EBTIDA of at least $13 million for FY18 and this half’s underlying EBITDA was only $5.5 million.

I believe the current price could make this growing small business a good long-term buy.

I also think that these top stocks could deliver growth as exciting as Zenitas.

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Motley Fool contributor Tristan Harrison owns shares of Zenitas Healthcare Ltd. The Motley Fool Australia has recommended Zenitas Healthcare Ltd. 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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