If you're on the lookout for bargain buys, then you may want to check out Australian Clinical Labs Ltd (ASX: ACL) shares.
That's because one fund manager believes the ASX 300 healthcare stock is trading at a mouth-watering discount.
The dirt cheap ASX 300 healthcare stock
According to a monthly update out of Blackmore Capital, its analysts revealed that they added Australian Clinical Labs to their portfolio last month.
In case you're not familiar with this ASX 300 healthcare stock, it is Australia's third largest pathology service provider.
Blackmore Capital estimates that the company's 75 labs and 1,326 collection centres across Australia give it a 16% market share.
And despite this and its above-market growth, the company's shares are still trading at a material discount to its peers, Healius Ltd (ASX: HLS) and Sonic Healthcare Ltd (ASX: SHL). It said:
ACL is trading on 12m forward PE of 15.3x, a ~42% discount when compared with Healius at 26.1x and Sonic Healthcare at 23.5x.
Why is this?
The fund manager appears to believe that investors have been spooked by the company's recent financials, which have been hit by a reduction in COVID testing revenues, and ignored the fact that underlying trends are positive. It explains:
ACL reported first half FY23 revenue declined by 33% on pcp to $360m, largely driven by the 83% decline in COVID revenue. However, organic non-Covid pathology revenue growth of 7% excluded the Medlab acquisition (+20% included Medlab) was above the market growth of 5% over 1H20 to 1H23, indicating market share gain.
ACL remains well placed as it leverages its unified national lab system and achieved better-than-peer cost control during 1H23. Group opex reduced by 10% vs pcp to ~$267m. Despite the fall in COVID revenue, ACL margins are now at more sustainable levels with EBITDA margin and EBIT margin being 28% and 11%, respectively. The balance sheet of ACL remains in good shape at ~0.2x ND/EBITDA. Pro-forma net debt post dividend $63.9m is lower than $93m at time of IPO in May-21.
