Investment Matters

Profit Reporting Season: Paragon Care

Profit Reporting season continued this week - with only one of the investments in your equity portfolio releasing its results.   Next week the number of releases ramps up.

It was an admirable result released by Paragon Care

Revenue increased 25%, earnings per share increased 11%, and the dividend increased 36% (on a conservative payout ratio, at 49%).  The company generated strong cash flow and its already conservative gearing declined from 20.7% to 18.7%.

This is the first year in which some major acquisitions made in FY-16 were included in results for the full year, providing a true picture of the earnings capacity of the company.  We expect strong continued organic growth (circa 10%) to continue, and additional growth from smaller acquisitions (with the potential for further large acquisitions should the right opportunities arise).

Due to seasonality in the business (stronger Q3 and Q4 due to budgets / purchasing timing of government and large hospital clients), the second half result was stronger than the first half - as expected.  Although Paragon has taken steps to in relation to this issue, it is quite inherent in their business and we do not assess it negatively.

Operating parameters showed strength, with inventories stable, stock turnover at a good level (5.4x), and a number of opportunities to increase product sales, through both new products and expanding geographies.

Overall it was a good result, and the company is set to continue growing in coming years; operating in sectors with positive demand trends (health and aged care).