Medica (MGP) 156.4p

Loss to date: 4.6%

We highlighted the attractions of teleradiology services firm Medica (MGP) on 9 March following a significant drop in the valuation of the shares despite the business doubling in size over the last five years.

The shares trade on a free cash flow yield of 5.8% according to Numis and offer the prospect of mid-teens profit growth over the next two years.

Encouragingly the shares reacted positively to the full-year results released on 29 March which were ahead of expectations, but remain slightly below our entry price.

WHAT HAS HAPPENED SINCE WE SAID TO BUY?

The company said current trading had got off to a strong start underpinned by new contract wins. It has acquired a small UK business which trains radiologists internationally which should support potential new hires.

The US division RadMD has made a bolt-on acquisition to provide expanded radiologist reader capacity to support its growth ambitions.

After reporting a strong conversion of its order book to revenues RadMD had a combined risk adjusted pipeline and order book of over $63 million at the end of 2022, which is expected to convert to revenues over the next three years. This means 75% of expected RadMd’s 2023 revenues are already underpinned.

Lastly the firm said its Australian joint venture MedX won its first out of hours contract and is exploring strategic partnerships in the Middle East and more widely overseas.

The training and development of radiologists outside the UK is expected to help develop a network of international radiologists at MedX.

WHAT SHOULD INVESTORS DO NOW?

Medica is well positioned to deliver growth as its increases reporting capacity in the UK and Ireland to reduce backlogs. In addition to organic growth the company continues to seek acquisitions to increase the scale and breadth of its services.

The valuation does not reflect Medica’s growth potential or leading market position. We remain positive.

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