Interactive Investor

Insider: a CEO bets own money on rapid profit growth 

14th June 2021 11:30

Graeme Evans from interactive investor

From humble beginnings, City supporters believe this small-cap share has potential to be a sector leader. Directors are buying housebuilder stocks too.

Support for “super growth” stock Medica Group (LSE:MGP) as one of the top picks in UK healthcare has been followed by the boss of the telemedicine specialist, buying £30,000 worth of shares.

Chief executive Dr Stuart Quin's purchase on Thursday came in the week that healthcare analysts at Liberum said the FTSE All-Share company had the potential to deliver the fastest and most visible revenues growth across its sector coverage for the 2021-25 period.

As hospital systems return to normal after Covid-19, the Liberum team believe Medica is well-placed to benefit from the backlog of patients in elective surgery, resulting in annual compound growth in revenues of 14% and earnings per share (EPS) growth of 22% over the five years.

The Hastings-based company started in 2004 as a small business above a flower shop, but is now the UK's leader in the transmission and display of radiological images, such as CT-scans and X-rays.

These are sent to a 500-strong team of reporters comprising consultant radiologists, radiographers and rheumatologists, who then review the images and patient history before sending a report back to the clinician.

Its services to more than 100 hospital radiology departments are split between the urgent reporting arm NightHawk and the elective division for routine reporting on MRI and CT scans.

Radiology activity reduced across the NHS last year due to the pandemic, pushing annual revenues 21% lower to £36.8 million and EPS down 57% to 3.47p. But the company is confident it can resume previous growth trends, based on the 4.7 million people waiting for hospital treatment as at April, and the new strategy it announced over a year ago.

Medica's efforts to expand its geographic reach and services in order to reduce reliance on the NHS have included the acquisition of GDI, which manages 50% of Ireland's screening and surveillance for diabetic retinopathy.

It has also launched its MedX joint venture with one of Australia's leading radiology companies and made its entry into the US market with the earnings-accretive acquisition of RadMD, a deal which will enable it to target the fast growth area of clinical trial imaging studies.

The US acquisition was funded in March through a £16.1 million share placing priced at a 5% discount of 145p. The stock, which listed in 2017, rallied as far as 165p this month but closed last week back at 151.5p, with Dr Quin buying his shares at 152.27p last week.

Joint house broker Liberum, however, has a price target of 235p and says the market is overlooking Medica's longer-term story, meaning the shares trade on a 30% peer discount.

In its latest analysis of the UK healthcare sector, Liberum said it favoured super-growth companies or those with a significant valuation discount and near-term catalysts.

Liberum said: “Medica fits the bill on the former and PureTech (LSE:PRTC) on the latter, hence they are our top picks for the remainder of 2021.

“Looking through the macro headwinds, there are two industry-specific dynamics that could help performance: healthcare systems reopening (Uniphar (LSE:UPR), Medica, Spire (LSE:SPI), SourceBio (LSE:SBI)) and further private equity take-outs (Clinigen (LSE:CLIN) potentially vulnerable to a bid).”

The broker expects Medica's revenues for this year to recover to £61.4 million and adjusted EPS to 7.39p, with an increased total dividend of 2.6p.

Dr Quin said last month that Medica had demonstrated the resilience of its business model during the pandemic and that it was now well placed as elective services recover.

He added: “A broader range of telemedicine services, coupled with a more international business, will provide Medica with additional opportunities to drive future growth and diversify its revenue base.”

Medica used to be majority owned by Nuffield Health, with its major shareholders now including Aberforth Partners, Liontrust Asset Management, Gresham House and Artemis Investment Management.

Newbies buy the housebuilders

Two newcomers to the boardrooms of housebuilders Taylor Wimpey (LSE:TW.) and Vistry Group (LSE:VTY) have taken the opportunity to snap up shares in their respective companies for the first time.

In the case of Vistry's Ashley Steel, her £25,000 purchase of FTSE 250-listed shares was made the day after joining the Bovis Homes owner as a non-executive director.

The former KPMG vice-chair has extensive experience of advising listed companies on strategy and is currently a director at National Express (LSE:NEX) and cinema group Cineworld (LSE:CINE).

Lord Jitesh Gadhia bought £50,000 worth of shares in Taylor Wimpey on Thursday, having joined the board of the FTSE 100-listed company at the start of March. His two decades of experience in the banking and private equity sectors includes senior roles at Blackstone, Barclays Capital and ABN AMRO Corporate Finance.

These articles are provided for information purposes only.  Occasionally, an opinion about whether to buy or sell a specific investment may be provided by third parties.  The content is not intended to be a personal recommendation to buy or sell any financial instrument or product, or to adopt any investment strategy as it is not provided based on an assessment of your investing knowledge and experience, your financial situation or your investment objectives. The value of your investments, and the income derived from them, may go down as well as up. You may not get back all the money that you invest. The investments referred to in this article may not be suitable for all investors, and if in doubt, an investor should seek advice from a qualified investment adviser.

Full performance can be found on the company or index summary page on the interactive investor website. Simply click on the company's or index name highlighted in the article.