Green Cross Health Limited

Company Overview: Green Cross Health Limited (NZX: GXH) is a provider of primary healthcare services, which supports a range of ancillary services, such as radiology, physiotherapy, midwives, and social workers. The three segments include Pharmacy services, Medical services, and Community Health.

GXH’s operations are in the pharmacy industry providing pharmacy services through consolidated stores, equity accounted investments, and franchise stores. The Medical services segment includes equity accounted medical centers and support services provided to the medical centers, as well as medical centers outside the Company. The Community Health segment provides services directly to the community to support independent living. The Company's medical network provides general practice services across New Zealand with over 900 doctors, nurses, and healthcare practitioners. The Company operates under various brands, such as Unichem, Life Pharmacy, Access, and The Doctors. 

GXH Details

A Trusted Primary Healthcare Provider: Green Cross Health Limited (NZX: GXH) is a trusted New Zealand primary health care provider with multidisciplinary health care teams with the purpose of working together to support healthier communities. The company has a market capitalization of ~$147.447 million as on November 9, 2020.

Results Performance (Year Ended 31^st March 2020)

The company’s revenue, operating profit (EBIT) and net profit after tax attributable to shareholders for FY20 stood at $568.5 million, $31.0 million, and $13.5 million, respectively. Pharmacy revenue declined by 1%, and operating profit was down by $4.8 million at $22.5 million. Medical performed well, with revenue up 8.5% and operating profit up 81.1% to $8.0 million. Community Health revenue was down by -0.5% to $156.5 million whereas operating profit increased by $2.4 million to $2.5 million. Earnings per share of the company was reported at 9.42 cps. The company reported a reduction of net debt by $10 million, with a group debt facility headroom of a further $10 million from BNZ which is maturing on 22 August 2022. The overall performance was positive and has not been impacted materially by COVID-19. There has been a turnaround in the Community Health division while the Medical Division experienced continued growth.  

Exhibit 1: Financial Highlights

 Source: Company Reports

Divisional Performance:

• Pharmacy Performance
  • Store closures as part of GXH’s ongoing portfolio review, resulted in a revenue decline of 1% to $336.4 million
  • Operating Profit declined by $4.8 million to $22.5 million

Exhibit 2: Pharmacy Division

Source: Company Reports

• Medical Performance
  • As a result of organic growth, revenue improved by 8.5% to $76.5 million.
  • Operating Profit improved by 81.1% to $8.0 million, reflecting improved operational efficiency and organic revenue growth.

Exhibit 3: Medical Division

Source: Company Reports

• Community Health Performance
  • Revenue declined by 0.5% to $155.6 million
  • Operating Profit improved by $2.4 million to $2.5 million, resulting from a focus on cost management, utilization of technology, and exit from unprofitable contracts.

Exhibit 4: Community Health Division

 Source: Company Reports

Top 10 Shareholders: The top 10 shareholders have been highlighted in the table, which together forms around 74.82% of the total shareholding. LPL Trustee Ltd. and Cape Healthcare Ltd. are holding a maximum stake in the company at 32.09% and 32.02%, respectively, as provided in the table below:

Exhibit 5: Top 10 Shareholders

 Source: Refinitiv (Thomson Reuters)

A Quick Look at Key Metrics: The company’s gross margin, EBITDA margin and net margin for FY20 stood at 65.6%, 10.3% and 3.0%, better than the industry median of 31.1%, 8.6% and 2.6%, respectively, implying a decent operating efficiency than its peer group.

Exhibit 6: Key Metrics

 Source: Refinitiv (Thomson Reuters)

Improvement in Net Debt: The company has witnessed an improvement of $10 million in net debt to $22.6 million and it has $10 million of headroom on BNZ group debt facility. The company is possessing robust balance sheet which could help the company in absorbing adverse impact of COVID-19 along with economic downturn. The company’s key financing ratios include 1) Debt / EBITDA, which is 1.44x, Operating profit / Interest, which stood at 16.2x and fixed charge cover, which is 2.3x.

Exhibit 7: Improvement in Net Debt

 Source: Company Reports

Exhibit 8: Key Valuation Metrics

Source: Refinitiv (Thomson Reuters)

Outlook:

GXH continues to focus on protecting margin via a differentiated pricing strategy as well as implementing a revised product offering which includes more emphasis on exclusive distribution arrangements. Its online offer continues to evolve, with the fulfillment capabilities and processes now well established, particularly given the customer demand during the lockdown. The company continues to strengthen its digital capabilities to personalize its offerings to customers. Under the Medical division, the company continues to work with the Ministry of Health and Primary Health Organisation to ensure equitable access to primary healthcare across the country. It is focused on continuous improvement in the operational efficiency as well as achieving economies of scale.

Under the Community Health Division, the company continues to focus on higher clinical needs and community support business. The focus is also towards profitability of all the contracts and targeting growth in the areas having higher margin.

With respect to Pharmacy, the company focuses towards adapting to changing market conditions as well as towards reducing labour and occupancy costs.

The company is focused on preserving cash including drawing down a portion of unutilized bank facility to shore up liquidity. This approach besides weathering the challenges from the pandemic, will help the company to be able to capitalize on future opportunities.

Technical Overview:

Weekly Chart –

Source: Refinitiv (Thomson Reuters)

Note: Purple colour lines are Bollinger Bands® with the upper band suggesting overbought status while the lower band oversold status, and yellow lines are Fibonacci retracement lines which measure price rebound and backtrack. https://www.bollingerbands.com/

After the previous week of a lower closing, the stock on the first trading session of the ongoing week opened low but finally closed at the previous week’s closing price of $1.03 thereby giving flattish close. The technical indicator RSI with around 46 reading but a curve the end flattening, suggests flattish to up momentum for the stock.

Going forward, the stock may have resistance around the upper Bollinger band of $1.06 whereas support could be around the lower Bollinger band of $1.00.

Stock Recommendation:

The turnaround in the Community Health Division, combined with the continued growth of the Medical division, more than offsets the ongoing competitive pressure in the Pharmacy division, which helped in delivering positive results for FY20, with constant revenue growth on year on year basis. The company is well-positioned to capitalize on opportunities that might arise over the medium term.

Considering the aforesaid facts, its positive FY20 results, and future development plans, we give a “Buy” recommendation on the stock at the current market price of NZ$1.03 per share on 9^th November 2020.

GXH Daily Technical Chart (Source: Refinitiv (Thomson Reuters))

Disclaimer

Kalkine New Zealand Limited is authorised to provide class advice only. The information on this site does not take into account any of your investment objectives, financial situation or needs. Before you make a decision about whether to acquire a financial product, you should obtain the Product Disclosure Statement from the product issuer. You should consider the appropriateness of advice taking into account your own objectives, financial situation and needs and seek independent financial advice before making any financial decisions.