Medica Group; interim results

Medica Group (MGP.L, FTSE Small Cap Index, Market Cap 161m, 145p, 1.6% of JIC Portfolio and 0.0% of JIC Top 10) 

Results for the six months ended 30thJune 2018  

Conclusion: No surprises here given the 25thJuly trading update. Strong revenue growth of 18.2% leading to earnings per share of 3.64p, up 16.0%. One of the attractions of the company is its strong cash flow, with cash conversion of 108.7% compared to 73.7% in H1 2017. This helped net debt fall from ¬£8.5m at 30thJune 2017 to ¬£2.5m and is expected to be ‚Äúnegligible‚ÄĚ at the year end. An interim dividend of 0.75p has been declared. It reminds us that gross margins of 48.9% in H1 are likely to reduce in H2 and into 2019 due to increased competition as the ‚Äúoutsourcing‚ÄĚ market grows. These results are re-assuring although it doesn‚Äôt feel like there will be any upgrades at this stage. Valuation looks okay at 18.9x December 2018 consensus forecasts for 39% growth and 16.5x December 2019 for 16.5% growth. The dividend yield is a little disappointing at 1.5% forecast for 2018. With little debt, strong cash flow and dividend cover of 3.6x there must be scope for higher dividend pay-outs. The bottom line is that I don‚Äôt feel that the investment story is compelling enough to add to what, at 1.6%, is one of my smaller holdings. Watching and Holding for now!


Financial highlights

·     Delivered revenue growth of 18.2%

o  NightHawk revenues grew strongly, increasing by 21.0% to £9.3m

o  Cross Sectional performed well, with revenue increasing by 19.6% to £7.0m

o  Plain Film revenues increased by 10.8% to £2.0m due to additional radiographer reporting

·     Gross profit margin was consistent at 48.9% (48.6% in 2017) as a result of positive contract phasing and volume mix

·     Adjusted operating profit increased by 15.4% to £5.0m

·     Net debt significantly reduced to £2.5m (2017: £8.5m)

Operational highlights 

·     Total number of reported body parts increased by 16.4%

o  NightHawk and Cross Sectional reported body parts increased by 24.4% and 21.8% respectively, well ahead of market

o  Plain Film reported body parts increased by 12.0% due to an increase in radiographer reporting

·     Continued to recruit strongly and added a net 33 radiologists in the period, taking the total to 339 contracted radiologists (including radiographers and rheumatologists) as at 30 June 2018 (30 June 2017: 267)

Post period end

·     Strong recruitment since 30 June 2018, adding a further 7 radiologists, increasing the number of contracted radiologists to 346 as at 12 September 2018

John Graham, Chief Executive Officer of Medica, commented: 


“Medica continued to deliver double-digit revenue growth in the first half of 2018 as we execute on our strategy to increase customer penetration of Nighthawk and Cross Sectional services. During the first six months of 2018, the Group has been investing in several medium- to long-term opportunities which will enable us to diversify our service offering and support growth.


We have continued to recruit radiologists to provide service to our customers and are confident that our capabilities can help our customers address the widely-reported radiologist shortage in the NHS.


Additionally, we continue to reduce net debt and expect this to be negligible by the year-end.


Overall, the Board expects the Company’s performance for the full year to be in line with market expectations.”

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