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A chronically undervalued healthcare opportunity

by Ozva Admin
  • H1 pre-tax profit of £2m is largely unchanged, but a strong H2 result is anticipated
  • Pioneer Healthcare wins multiple contracts since acquisition
  • Contract extensions across 15 urgent care centers worth £37m support recurring revenue

The NHS is in crisis. Before the Covid-19 pandemic, there were 4.4 million people on the waiting list for care, an impressive level. There are now 7.1 million, as the suspension of non-urgent services and changes in people’s behavior during the pandemic meant that a backlog of “hidden” cases is now becoming visible. Wait times are also material, not helped by acute NHS staff shortages.

One way to reduce the pressure on hospitals and help reduce waiting lists is to enlist more help from the private sector. This is not new: the pandemic demanded unprecedented block booking agreements with private healthcare operators. However, given staff shortages in all sectors of the NHS, private healthcare companies will have to play an even bigger role in the future if the government is to provide a service that is in demand by the public.

This is good news for the Derby Totally (TLY:29.5p), a private provider of high-quality patient care and workplace wellness services with a market capitalization of £59 million. Their services include the provision of urgent treatment centres, NHS 111 and GP Out of Hours (GPOOH) services on behalf of the NHS; Physiotherapy and dermatology services for the NHS, as First Contact Practitioner, meaning patients can bypass their GP, freeing up appointments and reducing waiting times; and outsourcing services (Pioneer Healthcare) using in-house consultants and nursing teams in all specialties (endoscopy, ophthalmology, ENT, orthopedics, and urology) with activities spanning diagnostics, outpatient surgery, and outpatient activity.

Although underlying first half profit before tax was broadly unchanged at £2m with a 14% increase on revenue of £70m, a strong performance is expected in the second half as its Pioneer division benefits from increased NHS demand to reduce spiraling waiting lists. It’s already happening. Since the acquisition of Pioneer in the first half, the company has won a £5m annual contract and four contract extensions worth £4.5m. Chief Executive Wendy Lawrence highlights an “increase in opportunities as the NHS refines its plans to meet commitments not to increase the number of waiting lists any further.”

This explains why property broker Allenby Capital expects the division’s revenue to double to £20.2m in the current year (representing 14% of the group’s £140m total) and gross profit to increase from £1.8m to £5.8m, which is 22%. of the brokerage firm’s group gross profit estimate of £25.9m, up from £22.9m a year earlier. These predictions seem sensible as Pioneer focuses on high-level elective procedures that command improved margins.

Around two-thirds of the group’s incremental £3m profit is expected to turn into pre-tax profit, so Allenby kept the £5.7m pre-tax profit estimate for the 12 months to March 31, 2023, supporting a strong increase in earnings per share (EPS) from 1.92 pence to 3 pence. On this basis, the shares are priced at a price/earnings (PE) ratio of 9.8 and offer a dividend yield of 3.4 per cent, last year’s annual payment of 1 pence per share is backed by a Expected reversal of first-half working capital buildup. that should see net cash more than double, from £7.4m to £16.8m (9.2 a year of holding) by March 31, 2023. Also, as Totally earns With more contracts, earnings momentum is expected to continue into fiscal 2023/24, when Allenby forecasts pre-tax profit and EPS could rise to £7.9m and 4.1p respectively, based on £160m revenue.

The prospects for earnings growth of 116 per cent over the two-year forecast period, together with the obvious need for more NHS outsourcing to reduce waiting lists, were key points when I launched coverage in the summer (Alpha Research: Profit from support NHS frontline services’, 28 July 2022). The investment case remains firmly in place and I stand by my 70p price target. To buy.

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