Paragon Care (PGC)

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Re: Paragon Care (PGC)

Why Paragon Care Ltd. surged after announcing a large capital raising

Brendon Lau | August 27, 2018 |  More on:  HSO  PGC  RHC

It defies conventional wisdom but hospital equipment supplier  Paragon Care Ltd.  (ASX: PGC) has surged ahead after announcing a $45 million capital raising at the same time as it handed in its earnings report card.

The share price of the hospital equipment supplier surged over 10% at the opening bell before giving up half of its gain to trade 5.4% higher at 82 cents.

That’s still a good outcome as most other companies doing a capital raise typically see their shares come under pressure as new shares are almost always offered at a discount to the current value.

The difference here is that Paragon has done the opposite and completed the share placement at a big premium to its market value. Hong-Kong listed  China Pioneer Pharma Holdings Limited has agreed to buy 50.4 million new shares in the ASX company at a price of 91 cents a pop.

That’s a 17% premium to Paragon’s last traded price on Friday and is quite a coup for management. It shows that the new investor is very confident that the stock is under-priced or it wouldn’t have coughed up to purchase 15% of the company.

I am not surprised to see the stock pull back from the morning peak and I suspect we won’t see Paragon trade above 91 cents in the near-term even as management posted a 17% increase in full year revenue to $136.7 million and a 6% improvement in earnings before interest, tax, depreciation and amortisation (EBITDA) to $18.2 million for the period ended June 30, 2018.

It is a good result but I think it misses the mark on a few fronts. While group earnings are up, its earnings per share (EPS) have fallen 13% to 5.4 cents due to recent acquisitions. This is a little below consensus data on Reuters.

There are also signs of cost pressures building. While gross margin is up 1 percentage point to 40%, EBITDA margin is down even if you discounted the impact of acquisitions.

Some may also question the synergies that China Pioneer can bring to the table outside of capital. China Pioneer is also a supplier of hospital equipment but to the Chinese market. The idea is that there could be cross-selling opportunities between the two entities (I suspect more so Paragon selling product into China through its new investor).

That makes strategic sense but some might argue that distribution partners don’t usually take a stake (and such a large one at that) in each other.

What probably persuaded Paragon is that China Pioneer was willing to offer so much and at such a big premium.

Paragon is a prolific buyer of businesses and it will use the cash injection to fund two potential acquisitions. The company has not released any details on the buyouts as it hasn’t signed any binding agreements.

I would normally be nervous about companies doing acquisitions, particularly at such a pace, although Paragon has a good track record on this front – at least so far.

In my view, the stock is a better way to gain exposure to the hospital industry instead of  Ramsay Health Care Limited Fully Paid Ord. Shrs (ASX: RHC) and  Healthscope Ltd  (ASX: HSO) who are impacted by the drop in private patients.

Paragon is also trading on a more attractive valuation, although the stock will probably struggle to trade much higher until management releases details on the two latest potential acquisitions.

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Re: Paragon Care (PGC)

Ha entrado Pionner Pharma a 91 c por acción en Paragon Care




Pioneer Pharma's $45m charge into Australian healthcare


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Pioneer Pharma's $45m charge into Australian healthcare




MON, 27/08/2018 - 10:12



Paul Li

Pioneer Pharma chairman Paul Li says he is excited over the cross-selling opportunities the investment will bring. Photo: China Pioneer

One of China’s top medical device and equipment distributors has landed in the $193 billion Australian healthcare sector, taking a $45.2 million stake in ASX-listed Paragon Care.

Hong Kong Stock Exchange-listed China Pioneer Pharma Holdings has subscribed to a share placement of 50.4 million shares in Paragon Care, priced at 91 per share.

The investment amounts to a 15 per cent stake in Paragon.

Pioneer Pharma said the investment would give the group a presence in the Australia and New Zealand healthcare sectors.

“In particular, the group intends to explore opportunities in the sales of certain of the group’s products in Australia and New Zealand and the distribution of the certain products of Paragon or other suppliers (through the business network of Paragon) in the People’s Republic of China,”  the company said in a statement to the HKEX.

Founded in 1996, Pioneer Pharma is one of the country’s leading distributors of medical devices and equipment, as well as pharmaceutical products, with its products found in more than 30,000 hospitals and medical institutions as well as 108,000 pharmacies.

Pioneer Pharma has a portfolio of more than 30 pharmaceutical products and medical devices, while its sales network includes more than 260 in-house marketing and promotion employees and more than 1,000 third-party promotion partners.

Chairman Paul Li said it was a "great privilege" for Pioneer Pharma to take a significant stake in Paragon Care.

"We are impressed by what Paragon Care has achieved over the past nine years and look forward to being part of the company's ongoing success and growth in the future," Mr Li said.

"We are excited by the potential cross-selling benefits for both companies."

Paragon Care expects to use the proceeds from the placement to fund its next round of acquisitions in Australia and New Zealand.

The company is targeting a $9 billion slice of the total $193 billion spend on Australian and New Zealand healthcare, focusing on high-value opportunities in medical and surgical supplies.

Paragon Care said that segment of the market was growing at around 6 per cent per annum in its annual report, which was also lodged with the ASX today.

Last financial year, Paragon Care competed nine acquisitions which increased its footprint in Australia’s diagnostics and laboratory markets, including the acquisitions of distributors Anaequip Medical, Surgical Specialties, LabGear Australia and manufacturers MedTech Solutions, Ummulab and Immino.

Paragon Care’s revenue was up 7 per cent to $136.7 million, for a net profit lift of 7 per cent, to $10.9 million.

Chairman Shane Tanner said the presence of Pioneer Pharma on Paragon Care’s share register would provide further growth opportunities.

 “This investment represents a pleasing validation of PGC’s strategy of building a sustainable growth platform to take advantage of the structural and demographic tailwinds underpinning the Australian and New Zealand health care sectors,” Mr Tanner said in a statement to the ASX.

“We look forward to exploring with China Pioneer the opportunities which may open up for both companies as a result of this investment.”

Bell Potter acted as Paragon Care’s corporate advisor, while Pioneer Pharma was advised by Perpetuity Capital.

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