Integral Diagnostics Ltd (ASX: IDX) shares are significantly undervalued, broker Bell Potter says, with total returns of more than 50% achievable over the next 12 months.
The broker has a bullish price target of $4 per share on the imaging company's shares, which is almost 50% higher than the closing price of $2.70 on Tuesday of this week.
And once a dividend yield of 3.3% is factored in, the total expected return for the company, which provides diagnostic imaging services such as magnetic resonance imaging (MRI), ultrasound, and radiography at 145 sites across Australia and New Zealand, increases to 51.3% over a 12-month period, the broker says.
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Government policy a tailwind
Bell Potter analysts said the commencement of the deregulation of MRI services by the Federal Government changed the landscape for companies such as Integral Diagnostics, in a positive sense.
The thinking behind the Federal Government's phased deregulation reflects the shift to focusing on efficiency and reducing overall cost in the health system, where greater utilisation of MRI scans can reduce the need for more costly surgical procedures.
Bell Potter analysts recently toured Integral Diagnostics' "jewel in the crown" – its Imaging at Olympic Park (IOP) facility in the heart of Melbourne's sports precinct at AAMI Park – which they said was a "leading centre of excellence in musculoskeletal imaging and innovative treatments for the sporting and wider community''.
We understand that IOP is currently the only private site in Australia that has three MRI machines, giving Integral Diagnostics an edge in leveraging the new opportunity from deregulation. As a prime musculoskeletal imaging site, it services key sports of AFL, NRL, basketball, cricket, tennis via The Australian Open and the Melbourne Victory soccer team.
Bell Potter analysts said the site was "extremely impressive" and had a strong operational focus, "generating superior profit margins''.
Share price fall creates opportunity
They also noted that the Integral Diagnostics share price had fallen about 10% after the announcement of a positive FY25 profit result in August, and by their metrics, the company was now "firmly in value territory in our view".
We think there are tailwinds emerging from the merger synergies, MRI de-regulation, the national lung cancer screening program, addressing locum costs in regional reporting contracts, as well as the ongoing penetration of IDXt (teleradiology).
In late 2024, Integral Diagnostics merged with Capitol Health in a scrip-based deal, which valued Capitol at $413 million.
Bell Potter analysts said they expected the company to also announce the appointment of a new chief executive in the lead-up to the annual general meeting, which is being held on October 31.
