Med­ica is a pre­mium growth story

The NHS does not have enough ra­di­ol­o­gists to in­ter­pret po­ten­tially life-sav­ing scans

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Tel­era­di­ol­ogy firm Med­ica (MGP) is ex­pected to en­joy rapid growth thanks to a surge in de­mand and a lack of ra­di­ol­o­gists in the UK.

Med­ica helps to pro­vide early di­ag­no­sis of var­i­ous dis­eases through its con­sul­tant ra­di­ol­o­gists who in­ter­pret com­put­erised to­mog­ra­phy (CT) and magnetic res­o­nance imag­ing (MRI) scans. If these scans iden­tify dis­eases ear­lier, it can im­prove treat­ment op­tions and out­comes.

STRONG PER­FOR­MANCE SINCE IPO

Beren­berg says earn­ings be­fore in­ter­est, tax, de­pre­ci­a­tion and amor­ti­sa­tion and earn­ings per share are ex­pected to grow at a com­pound an­nual growth rate of 16% and 20% re­spec­tively be­tween 2017 and 2020.

Med­ica has en­joyed a strong share price per­for­mance since its IPO on 21 March 2017 when it raised £121m to pay down bor­row­ings. Since 22 March, the stock has ral­lied 16.9% to 219.2p.

The company cur­rently trades on a fore­cast 29.8 times earn­ings per share in the year to 31 De­cem­ber 2018, but Beren­berg an­a­lyst Charles We­ston thinks this pre­mium val­u­a­tion is ‘jus­ti­fied’ in light of rapid growth.

The an­a­lyst projects 8% growth per an­num in the vol­ume of CT and MRI scans han­dled by the company, which will be sup­ported by a deficit of ra­di­ol­o­gists in the UK.

There are 4.7 ra­di­ol­o­gists per 100,000 of the UK gen­eral pop­u­la­tion. This is ma­te­ri­ally be­low the Royal Col­lege of Ra­di­ol­o­gists’ tar­get of 8 per 100,000, and is push­ing up wait­ing lists.

OUT­SOURC­ING TRENDS AND PRICING POWER

One of the ways to tackle this is­sue is by out­sourc­ing ser­vices. We­ston says ap­prox­i­mately 7% of CT/MRI scans are out­sourced. Med­ica has a dom­i­nant po­si­tion in the UK tel­era­di­ol­ogy mar­ket (50%) and this al­lows it to charge 5% to 10% more than its ri­vals.

The an­a­lyst also high­lights that 80% of all clin­i­cal de­ci­sions are un­der­pinned by imag­ing and new clin­i­cal guide­lines for quicker di­ag­no­sis of dis­eases such as can­cer and de­men­tia call for scans.

Med­ica pro­vides ser­vices to over 100 NHS trusts, as well as pri­vate hos­pi­tals and di­ag­nos­tics imag­ing firms, and in­tends to ex­pand its ser­vices to tack­les con­di­tions such as strokes.

There are risks as­so­ci­ated with the busi­ness. Med­ica needs to en­sure it con­tin­ues to re­cruit ra­di­ol­o­gists to meet de­mand as oth­er­wise growth could be con­strained.

We were ini­tially cau­tious on Med­ica’s de­pen­dence on the NHS and We­ston also high­lights the NHS ex­po­sure as a rea­son for some cau­tion as 99% of sales are de­rived from NHS Trusts.

De­spite this nag­ging con­cern we are con­vinced high de­mand and low supply will drive Med­ica for­ward. (LMJ)

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