GPO x 2 Full year results

AUSTCO AZURE 7.4c last August 2018
MKT Cap $17.4

Austco Azure snapshot pre FY+GPO’s.
GPO’s
Austco has signed its second deal with a GPO (Group Purchasing Organisation), this is a change in business direction.
Ideacom is an unlisted GPO Group, representing Mid America Hospitals, I think its 4 or 5 US States - Hospitals No’s unknown).
GPO’s are membership based groups that the Hospital Organisations pay fees to be part of. GPO’s conduct due diligence on the products they endorse.
Magnet Group was the first GPO deal. Ideacom is exclusive deal to Austco, and has come about as a result of a competitive tender process. This was not price based, technology was stated as the winning factor. This is impressive because it was won against the incumbent RaulandBorg, Ascom and Hill-Rom, far bigger organisations. The IDEACOM GPO position was held previously by RaulandBorg. Rauland Australia is a distributor of RaulandBorg USA products.

The long term Industry leader in the Nurse Call space is RaulandBorg. RaulandBorg a private company until recently, reported group revenue of $160m USD. RaulandBorg has enjoyed dominance, care of heavy R+D investment. So what has changed? Rauland Borg was acquired by Ametek 2017 for $340 million +bonus (if targets hit) they Hit numbers. (The Rauland’s Kids now live in Mykonos and Vail, -that’s a joke but probably true). https://www.ametek.com/pressreleases/news/2017/february/ametekacquiresraulandborg

As is often the case when a private business that is taken over, the acquiring company AMETEK in this case, makes sweeping changes to monetise the new business. Ametek would want to see profits from their investment, so they reduce headcount and don’t spend on product development and R+D. AMETEK is NYSE listed with 4.2 Billion of sales. See AMETEK result- investor presentations 2017. The Rauland investment a pimple in the Ametek revenue breakdown.

This monetisation theme was evident at the Global HealthCare conference “Hymms” this year in March 2018.
No new product development on the Rauland Stand and very few old Rauland Vice Presidents on the floor. Industry feedback also suggest, account managers at Rauland are in the market looking or have relocated within Industry.

New Opportunities
Austco/Azure moving into GPO business, flags a few positive sign.
Investment in R+D - new product Tacera Pulse is paying off.
The business is No longer being distracted by the relocation process of move to the US.
Board changes the unforgettable miss to forecasts made by RG in 2015 are not forgotten but no longer distracting the company from taking on and winning new business opportunities that were not previously in the companies rev mix.
One would have to presume that GPO relationships brings a whole new revenue segment to the table, some give-up on the margin front to be expected. Less of more, is still more right. This worked for Rauland…

Future Reporting
The nature of the Austco business is that it works via resellers/installers in Australia and in the US, plus two new GPO organisations. What may not be understood by the Australian market is that US Hospitals will not allow their name to be quoted when business is won. This one aspect as to why contracts are not announced to markets here. Going forward it will be interesting if management will be able to retrospectively flag GPO revenues.

Reporting.
Its now 3 years since the unforgettable downgrades and board changes. Full Year profit could be the first signs green shoots emerging. It will be interesting to see what NPAT AZV prints for the full year in last week of reporting season. Austco also has new Auditors on the Job - EY, reportedly cheaper and global.
Will that assist JasonD get his homework in earlier than the last week of reporting season after 4.30 on a Friday.

Revenue
At a Group revenue level revenue has stayed reasonably stable, with around $28m FY rev +/- 2m whilst Austco made changes to product place and people. NPAT will be the indication of the tide really turning. AZV reported 400k for the Half so better than 400k+ in the second half would be on track. Outlook and disclosure around hardware Software revenue split of GPO business and other revenues should set the outlook for future profitability and valuation. Ebitda % growth rate.
What if
If the takeover price is 2.3 times revenue for Rauland what price should AZURE/Austco trade at with first evidence of recovery? If recovery is measured in a return to profitable, what is the appropriate valuation metric? I don't know. But with $28/30m of revenue and 230m shares on issue, 1x times’ revenue is about 12/13c. According to industry the highest paid for a NC takeover was 2.5 times revenue. Presently AZV trades on half times revenue @ 30m rev. On these metrics AZV is deeply undervalued But, Corporate appeal would only come into the equation if an acquirer was confident they were not buying problems, as was the case with Rauland.

Presumably the new approach with GPOs in the mix; Magnet and Ideacom - Austco would be aiming for top line revenue growth, plus growth to its small software revenues from existing business. This would be extremely positive change from where AZV investors have come from in last 3 years. Capacity to handle such growth would be great problem to have in a lower cost US environment*(Lower than $AUD).
MD – Clayton Astles – Holds 663735 shares.
Clayton has overseen the transition of Austco business during challenging times. Closure and Sale of the Western Australian factory, Melbourne Corp Office to and Opening of the Dallas based Global HQ, management change have all occurred under his watch. Clayton has made efforts to establish the business on a long term trajectory. Having met Clayton in Australia and in the USA, he is very reassuring influence on the business. He is speaks a language of under promising and over delivering and the importance of the long term vision for the company. Clayton Astles – Holds (663735 shares, a bit light on here) .

HIL/ONE/RAP/TelstraHealth
There some amazing MKT Caps in the Health space.
Hills health division seems have turned around, but this will be hidden by Hoist Group REV big thanks Master TED. The Hills Health division, is winning business in a simplified cleaned up Health and Security business offering. The Health division is now being run by Andy Hall who was previously running Rauland Australia. If Only Hills had cash firepower it had 4 years ago and a merger would make for a Global consolidation growth story, timing is everything… anyway that’s ONEview…
NathB you got anything Or r u busy elsewhere RAPping with AppleJ?
How long before Telstra Health exits its Health Division?
As with everything here DYOR