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Medica: top line to the rescue

The medical imaging outsourcing company expects double-digit revenue and profit growth in the second half

Medica: top line to the rescue

Medica’s (MGP) initial public offering (IPO) has had a marked effect on the balance sheet. After raising £15m of cash in March, the teleradiology company repaid £15.7m of debt, which more than halved finance costs in the period. Together with cash generated from operations, this fundraising helped to bring net debt down to £8.5m by the period end, from £22m six months earlier.

IC TIP: Buy at 197p

Still, investors were not wowed by these half-year results, sending the shares down around 5 per cent on the morning of the announcement. Their concern, it would seem, is the weakening of gross margins from 50.6 per cent to 48.6 per cent due to a reduction in the average price of contracts as the market develops – a trend that management admits may continue. That said, demand for Medica’s services far outweighed the thinning margins, meaning adjusted operating profit rose 15 per cent to £4.3m.

And that demand is likely to continue as the NHS's cost pressures persist. Medica provides medical imaging reporting services – powered by its team of radiologists – to more than 60 NHS Trusts, specialising in times of day when hospitals or emergency care outlets may be short staffed or under time constraints. The trend for outsourcing these teleradiology services is growing in the UK, which is why Berenberg expects compound annual revenue growth of 21 per cent for the four years to 2019. The broker has forecast EPS of 3.98p in the year to December 2017 (from 3.32p in 2016).

MEDICA (MGP)   
ORD PRICE:197pMARKET VALUE:£219m
TOUCH:197-200p12-MONTH HIGH:242pLOW: 170p
DIVIDEND YIELD:0.3%PE RATIO:88
NET ASSET VALUE:19.7p*NET DEBT:39%
Half-year to 30 JunTurnover (£m)Pre-tax profit (£m)Earnings per share (p)Dividend per share (p)
2016**13.42.271.80nil
201715.71.290.730.55
% change+17-43-59-
Ex-div:28 Sep   
Payment:27 Oct   
*Includes intangible assets of £25.6m, or 23p a share  **Pre-IPO figure