What is the stock?
Paragon Care (ASX: PGC) is a provider of integrated services to Australia’s health and aged care markets. The company supplies durable medical equipment to hospitals, medical centres and aged care facilities.
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How long have you held the stock?
Since February 2018
What do you like about it?
Overall Paragon Care is well placed to capitalise on the ageing population, and the company currently trades on a relatively low P/E multiple of 15, which presents a healthy discount compared to the sector. The business boasts five years of consistently increasing Net Profit, ROE and operating margins. Since 2008, the company has made a large number of smaller acquisitions in a fiscally responsible manner. The most recent has given them a strategic entry point into the New Zealand market. In addition to strong growth prospects, at current prices the company currently pays a 3.6% fully franked dividend.
How is it better than its competitors?
Through is progressive growth through acquisition strategy, Paragon Care has positioned itself as a high-quality provider of end-to-end solutions within the health and aged care space, unlike some of its peers that operate in more niche markets. Over several years, the business has proven its ability to generate strong synergies across the board.
What do you like about its management?
Recently appointed chief executive officer, Andrew Just, has significant experience across health care sectors, holding leadership positions in both Australia and overseas listed companies such as Cochlear (ASX: COH) and GE Healthcare (NYSE: GE).
What is your target price?
The 12-month price target is $1.
At what point would you sell it?
We would re-evaluate our position if the company was to start paying overly high multiples for any future acquisitions. With the recent expansion into the New Zealand market, it shows the company’s intent to venture offshore. This creates some execution risk and would be something to watch closely.
How much has it added (subtracted) to your overall portfolio over the last 12 months?
In addition to the interim dividend, the capital growth for most clients sits between 5-20%.
Where do you see the value?
Long term we see this stock as an attractive mix of growth and income, currently under a very reasonable valuation. If they can continue to capitalise on a fragmented market with smart acquisitions, management should be able to extend strong trends in the company’s underlying earnings growth and increasing operating margins.
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