Sector tailwinds create defensive growth profile
What’s ahead for IDX in 2021, after some COVID-related challenges in 2020?
2020 full year result
COVID-19 was a major challenge for the whole sector in 2020. As shown below, the diagnostic imaging (DI) sector’s growth turned negative in March, and ended the 2020 financial year well below the long term average growth rate of 4.7% p.a.
A fully franked final dividend of 4 cents was declared, bringing the full year dividend to 9.5 cents which represents a 2% yield.
The company ended the year with net debt of $124 million, up 4% on a year ago.
Sector consolidation activity
It is a sector where scale and margins are closely related, so further M&A activity is likely. Capitol Health in particular is likely to remain in the market for acquisitions.
Consensus forecasts are for 21% revenue growth and 53% EPS growth in the 2021 financial year, reflecting the indexation tailwind, followed by more normal 8% revenue growth and 11% EPS growth in the 2022 financial year.
At the current share price of $4.06, IDX is trading on a 2022 PE ratio of 20.4 and a 2022 EV/EBITDA multiple of 10, which represents a modest premium to Capital Health’s 2022 PE ratio of 19 and a 2022 EV/EBITDA multiple of 8. A premium seems appropriate given the high quality of IDX’s assets and management team.
The stock is currently discounting 4% p.a. EPS growth into perpetuity (assuming a 7.5% discount rate) which appears to be more than achievable. The current consensus analyst rating on the stock is Buy.
IDX share price
Disclosure: The author does not hold shares in IDX.
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