There are few investment managers with a better record than WAM Microcap Limited (ASX: WMI) in FY18. So far in this financial year the listed investment company’s portfolio has returned 25.1% before fees and expenses.
It looks for shares with market capitalisations that are less than $300 million at the point of acquisition. This can mean choosing shares that are truly micro in size, with market capitalisations of $50 million or less. It can also mean investing in decently-sized small caps.
One of its current biggest positions is Lifehealthcare Group Ltd (ASX: LHC). Lifehealthcare describes itself as one of Australia’s leading medical device distributors. It says its strength ‘lies in offering the scale of a multinational without being constrained by a single foreign parent company.
The company works with surgeons and it had 174 active surgeons at the end of 31 December 2017, which was an increase of 37 compared to the previous result.
Lifehealthcare’s half-year result was quite impressive. It delivered revenue growth of 9.3% to $67.4 million, with organic growth coming in at 3.4%. The gross margin increased by 2.5% to 55.4%. The operating earnings before interest, tax, depreciation and amortisation (EBITDA) increased by 9.9% to $9.8 million.
The management have forecast high single digit to low double-digit growth of revenue, underlying EBITDA and underlying profit, which is very positive.
Demand for healthcare should continue to rise with an ageing population, new technologies and rising rates of chronic diseases. The impact of the prostheses list reform is now known, providing price certainty for a four-year period and Lifehealthcare said it has plans to offset this impact.
Lifehealthcare is currently trading at 16x FY19’s estimated earnings, which seems like a reasonable price to pay for a company which is growing revenue at a decent rate. It also comes with a handy grossed-up dividend yield of 5.95%.
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As of 2.11.2020
Motley Fool contributor Tristan Harrison owns shares of WAM MICRO FPO. 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 Scott Phillips.