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.
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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.
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