Removal of heightened insolvency risk allows VEI's stock price to rally. At an expected net debt balance of $80m at 30 June 2012, more investors, including the company's auditor (going concern comment removed from the audit opinion), believe debt and an interest bill of $9m pa is manageable on underlying EBITDA earnings of $27m pa in 2012.
Some now see underlying value at between five and six times EBITDA which, conservatively allowing for further margin erosion in 2013 of $2m due to ongoing rollout of the new Doctor Rem model, equates to an enterprise value of between $125m and $150m, or less net debt of $80m, of at least $45m to $70m. Additional confidence restored due to the recent two new doctor recruits, albeit doctor head count numbers remain below peak levels. Doctor contracting renewal risk continues to impact long term confidence and EBITDA multiples.
HY Normalised EBIT fell to $11.7m from $12.0m in 2011. EBIT margins reduced to 20.75% from 22.37%. Performance has continued to deteriorate from HY 2009, which had earned EBIT of $13.1m at a margin of 23.46%.
Continued margin erosion evident in key business segments: the Victorian segment earned less EBIT at $5.13 compared to %5.65m in 2010, even though revenues increased by 9.6% to $15.0m, where the $1m margin difference is anticipated to have largely been incurred on additional doctor remuneration.
Corporate overheads remain a concern, increasing by 42.7% to $2.47m, expected to be due to additional head office administrative headcount and marketing expenditures. Continued weakness in laser refractive surgery procedures noted.
Long term favourable demographic change (ageing population) and closed shop/high barrier to entry industry economics investment story remains in tact,as does scrutiny over any evidence of Doctor (mis) behaviour in respect of remuneration demands.
VEI Price at posting:
27.1¢ Sentiment: None Disclosure: Not Held
