A major problem that companies operating in the public health sector face is cost-cutting from their single customer, the NHS. For teleradiology outsourcer Medica (MGP), low prices are expected to hurt gross margins in the medium term. And even if the timing of certain contracts helped stabilise gross margins at 49 per cent at the half-year stage, broker Berenberg expects them to fall to 47 per cent by 2020.
Still, demand from the NHS is on the rise. As such, revenues grew significantly across all three of the group’s service areas in the first half of 2018, with a particularly impressive 21 per cent increase in sales of the NightHawk 'out of hours' service, despite the loss of two big contracts at the end of 2017. NightHawk is, in fact, the group's largest contributor, accounting for 50 per cent of total first-half revenues. For the Routine Cross Sectional division – which analyses the results of CT and MRI scans – sales have been driven by more contract wins with existing clients, while the addition of radiology reporting helped spark a turnaround in the Plan Film division.
But the higher staff costs also dented operating margins during the period, so Berenberg now expects adjusted cash profits of £12m in the full year (from £11m in 2017). However, better cost control could help propel profit growth at a faster rate.
| MEDICA (MGP) | ||||
| ORD PRICE: | 152p | MARKET VALUE: | £169m | |
| TOUCH: | 148-152p | 12-MONTH HIGH / LOW: | 233p | 111p |
| DIVIDEND YIELD: | 1.2% | PE RATIO: | 24 | |
| NET ASSET VALUE: | 24.6p* | NET DEBT: | 9.2% | |
| Half-year to 30 Jun | Turnover (£m) | Pre-tax profit (£m) | Earnings per share (p) | Dividend per share (p) |
| 2017 | 15.7 | 1.29 | 0.73 | 0.55 |
| 2018 | 18.6 | 4.35 | 3.19 | 0.75 |
| % change | +18 | +237 | +337 | +36 |
| Ex-div: | 27 Sep | |||
| Payment: | 26 Oct | |||
| *Includes intangible assets of £24.7m, or 22.3p a share | ||||
