- £66mn contract for urgent treatment centres in Bromley
- £10mn contract to provide national NHS 111 contingent services
- Company terminates contract in north-west London
Shares in Derby-based Totally (TLY:23.6p), a private provider of high-quality care and workplace wellbeing services, have come under selling pressure after the board terminated urgent treatment centre (UTC) contracts at four hospitals in north-west London for unspecified legal reasons, days before they were due to end on 31 January 2023. The share price has fallen from 38p to 23.6p since then, taking it below the 29.5p level at which I reiterated my buy call at the interim results (‘A chronically undervalued healthcare opportunity’, 14 November 2022).
Totally’s Greenbrook Healthcare subsidiary (acquired in June 2019) has provided urgent care services in north-west London since 2016. The UTC contracts in question had been extended last year and were worth £19mn in revenue to Totally over the 10-month period from 1 April 2022 to 31 January 2023. The services provided were inspected by the Care Quality Commission (CQC) in August 2022 and rated as ‘Good’ overall. Totally’s urgent care division provides urgent care services to 19 other UTCs, all of which are rated ‘Good’ by the CQC.
The announcement has overshadowed news of some notable awards since mid-December 2022. These include a £66mn re-tender contract (commencing on 1 April 2023 for a term of five years with the option to extend for a further three years) for the provision of two UTCs in Bromley, south-east London, and a £10mn one-year contract with NHS England to provide national NHS 111 contingent services. That contract starts on 1 March 2023 and has an option for a 12-month extension.
Importantly, the group is well placed to win further contract tenders as they pass through the procurement process, and not just for the provision of UTCs, NHS 111 and GP out-of-hours (GPOOH) services on behalf of the NHS. The group also provides physiotherapy and dermatology services to the NHS so that patients can bypass their GP, and higher-margin insourcing services (through the Pioneer Healthcare business) which provide in-house consultants and nursing teams across certain specialities (endoscopy, ophthalmology, ear nose and throat, orthopaedics and urology).
The NHS needs as much help as it can get from the private sector to reduce record patient waiting times for treatment. At the start of this year, around 7.2mn patients were on NHS waiting lists for care, including 3.1mn people who have been waiting over 18 weeks. A staggering 0.4mn patients have been waiting over a year for treatment, 239 times higher than pre-pandemic levels, according to the British Medical Association.
Financial forecasts
Joint corporate broker Canaccord Genuity selected Totally as one of its top 14 stock picks of 2023, a list that also includes alternative asset manager Gresham House (GHE) and lithium miner Cleantech Lithium (CTL), companies I rate highly.
Analyst James Wood highlights the competitive advantage of Pioneer Healthcare (acquired by Totally in March 2022) as a significant driver of growth. The business has Any Qualified Provider (AQP) status, which enables it to offer services direct to NHS patients across the whole of England, free at the point of delivery, where there is sufficient demand. The acquisition is performing well. In fact, Totally settled the maximum £6.1mn deferred consideration on the £13mn acquisition price at the end of 2022.
Factoring in a 12-month revenue contribution from Pioneer Healthcare, Wood pencils in a 10 per cent rise in group revenue to £140mn in the financial year to 31 March 2023, an outcome that is expected to deliver 33 per cent higher cash profit of £8.3mn and adjusted pre-tax profit of £5.8mn, up by almost half on the previous year. On this basis, the shares are rated on 7.1 times Canaccord’s earnings per share (EPS) estimate of 3.3p and offer an attractive 4.2 per cent dividend yield based on a maintained 1p-a-share payout. Expect closing net cash of £8mn (4p a share) after factoring in the £4.9mn cash element of the £6.1mn deferred payment made on the Pioneer Healthcare acquisition.
This means that the shares are currently priced on a cash-adjusted price/earnings (PE) ratio of 5.9, a rating that implies Totally’s growth is set to come to a juddering halt rather than deliver another step change in forecast earnings per share (EPS) to 4p in the current year, as Canaccord predicts.
The de-rating seems a huge overreaction given that the contribution from last month’s NHS 111 contract win (£10mn a year) and the Bromley contract (£8mn a year on improved financial terms) help to offset the loss of the north-west London UTC contracts. Recovery buy.
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