Life Healthcare Group (LHC)

By Jason Fittler

Life Healthcare Group Limited (LHC) is a distributor of high-end medical devices in Australia and New Zealand.

LHC sells its products to surgeons, hospitals and other medical specialists. It does this via 62 specialty focused sales representatives.

LHC's headquarters is in Sydney. It has sales offices in Perth, Adelaide, Melbourne, Brisbane and Auckland.

First half earnings will beat prospectus forecasts. With LHC disclosing Sales 10% ahead of proforma to $48.4m, EBITDA 14% ahead to $8.5m and NPAT 20.3% ahead to $4.1m.

High margin prosthetic devices, gaining share in spinal segment, higher margin capital equipment sales and pricing increases all helped to drive growth.

Concerns around LHC's foreign exchange exposure may have been overdone.

Near term LHC is protected with a foreign exchange hedge, LHC holds and average AUD/USD hedge at $0.91.

Around 40% of LHC's costs relate to cost of goods sold but around 25% is US derived.

With recent USD gains, essentially LHC needs to offset around 25% of foreign exchange moves with price increase of around 2.5%. 

LHC has reduced debt but with favourable leverage ratios has flagged opportunity to fund growth.

Our 12-month price target is $3.40, up from $2.90.

The company is currently trading at $2.60.

The forecast dividend yield is 6.1% for the 2015-year although this will be unfranked makes the company look like good value at the current price.

I note that the company has recently had a $0.50 price increase, up 23% over the past couple of days.

So I would be cautious on the entry point as short-term we may see some weakness.