Medica Group - Time to take a second look?

Thursday, Feb 21 2019 by


Medica Group is the market leader in the provision of teleradiology services to the NHS servicing over 100 Acute hospitals. The company offers three primary services to radiology departments to meet varying demands: Nighthawk, Routine cross-sectional (Routine CS) and Routine plain film (Routine PF). These services help departments manage their workflow more efficiently and provide rapid access to specialist Consultant Radiologists.

Nighthawk is an out of hours emergency reporting service focused on short turnaround times, which average 25 minutes, and typically covers reporting on CT scans. Routine CS and Routine PF are both for less urgent daytime reporting. Routine CS covers a combination of CT and MRI scans (both forms of cross-sectional scan) while Routine PF covers plain film images and both services typically have a 48 hour turnaround time.

To make this all work the company has invested in a bespoke IT platform that links customers to Medica radiologists in a secure manner. In theory this is a scaleable platform that allows for growth in existing service lines while also allowing new lines to be added. Nevertheless most of the business capex is around maintaining this platform and providing the hardware which accesses it to hospitals and radiologists; hence further capex will be required as the business expands.

NB: If you're interesting in understanding why someone would become a teleradiologist then this is a good series of articles - onetwothreefour

Stock-specific Analysis

I first stumbled across Medica Group last year when I was looking for a share to talk about at the inaugural Stockopedia StockSlam. At a glance the company seemed to match most of the QARP (quality at a reasonable price) criteria that I look for in an investment and this remains true today:

SharePad summary

Specifically profit generation looks solid with a high, and improving, EBIT margin and ROCE (where an absolute value >20% is excellent). In addition forecast growth of 25% in EBIT compares very favourably with a PE ratio of just under 16 (although it's fair to say that EPS growth of 8.7% is less than I'd expect given the top-line growth rates). One particular feature which I like is that the ROCE of 23% is greater than the 3-year average of 16%. This suggests returns on capital investment are improving and this is a great place…

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Medica Group PLC is a United Kingdom-based company, which is engaged in the provision of teleradiology services. The Company offers an information technology (IT) platform that provides linkage between a hospital's radiology information system (RIS) and consultant radiologists who contract with the Company. The Company operates through Teleradiology reporting segment. The Company offers three services to hospital radiology departments: NightHawk, Routine cross-sectional (Routine CS) and Routine plain film (Routine PF). The Company's NightHawk service is an out of hours service to hospital emergency departments, offering always on support around the clock. NightHawk provides reporting on Computerized Tomography (CT) scans. Its Routine CS and Routine PF are both designed to assist hospitals in managing their daytime capacity and turnaround times. It provides Teleradiology services to NHS hospitals, private hospital groups and diagnostic imaging businesses. more »

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4 Posts on this Thread show/hide all

john652 26th Mar 1 of 4

Excellent article Damien

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Wimbledonsprinter 26th Mar 2 of 4

Damien. Thanks for the excellent write up. Graham Neary covered Medica in yesterday’s (25 March) SCVR and seemed positive and the results looked good. There were quite a few comments from readers, where the two main doubts seemed to be:

1) Medium/ long term risk of AI making human radiologists redundant;
2) Short-term political risk. Stopping NHS outsourcing to the private sector seems to be a priority for the Labour Party (maybe irrespective of efficiency arguments).

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Damian Cannon 26th Mar 3 of 4

In reply to post #461878

Thanks Wimbledonsprinter. To your points, which I agree with, I would add:

1) Pressure on margins will continue as trusts renegotiate their framework agreements and put the screws on Medica.

2) Growth will continue to be restricted by the numbers of radiologists that they can recruit although the move towards using foreign radiologists will definitely help.

3) Hopefully the fact that the CEO is stepping down isn't a red flag. Although if the CFO leaves for any reason as well then that certainly will be!


Blog: Ambling Randomly
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andrea34l 27th Mar 4 of 4

A very good write-up! I had looked at Medica (LON:MGP) quite recently, and was a little worried that in each half year the number of newly-recruited radiologists on the books was dropping each time, though the start of the new year seems to be going well and international expansion may help.

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