Paragon released a strong result; well ahead of expectations. Past acquisitions drove the revenue and profit growth, with assistance from organic growth.
Gross margin reduced, because the portion of lower margin consumable sales increased. The advantage, however, is consumable sales tend to be less volatile. The company expects a 70/30 sales split between consumable and capital items by FY-17.
Cashflow wasn't as strong as expected, due to the rapid growth, and to one of the acquired companies having poor working capital control. We understand that this will reverse in the next results' release (and we will obviously monitor that this does occur). The company retains a strong balance sheet, with capacity for further acquisitions (should the right opportunity arise). As you may recall, Paragon is seeking to play a role consolidating the highly fragmented health supplies sector.
Over the next 6 months, past acquisitions will contribute fully to earnings (rather than for only part of the reporting period). This will result in further revenue and profit growth. Additionally, H2 earnings are usually higher due to more capital goods sales into the end of the financial year. Therefore, we look forward to another strong result for the full year.
Paragon is expected to provide capital growth for the equity portfolio over the coming years, whilst also delivering some income via the fully franked dividend.