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  • Writer's pictureMark Watson-Mitchell

Medica Group – looking to fill a big NHS gap

Have you ever wondered why it takes so long to get your medical scan reports?

The simple answer is that there is a massive undersupply of consultant radiologists in the UK.

Only 2% of NHS radiology departments have the ability to meet their reporting requirements within contracted staff hours and there is ongoing annual growth in UK scan volumes.

In 2018 there were some 379 consultant vacancies, in 2019 only an estimated 154 trainees will have entered the UK consultant workforce. That gap is going to get even larger.

There is a continuing growth in outsourcing with the NHS unable to meet the new CQS standards.

That is just where the Hastings based Medica Group (LON:MGP) has positioned its operations. It is the UK market leader in the provision of teleradiology services.

Teleradiology is the electronic transmission of radiological patient images from one location to another for the purposes of diagnostic interpretation and reporting.

Those images can include plain film x-rays (PF), computerised tomography (CT) scans and magnetic resonance imaging (MRI) scans.

Through teleradiology, the images can be transmitted from the hospital setting, where the images are created, to a radiologist who can review and report on the images remotely.

In the case of Medica, these are consultant radiologists specialising in the relevant field, who typically report on the image from their own home or from one of the company’s own dedicated reporting centres.

It contracts with the largest pool of consultant radiologists outside of the NHS, servicing over 100 NHS Acute hospitals, which benefit from increased capacity and a breadth of specialisms that they do not always have available.

Medica has invested in its bespoke IT platform to provide a robust and secure connection with its customers. It helps to deliver a simple and quick service with enhanced functionality, ultimately improving patient outcomes, and providing a unique degree of linkage between the group’s clients and its contracted radiologists.

The company currently offers three primary services to hospital radiology departments to meet demand and supply imbalance in urgent and non-urgent settings: NightHawk – an out of hours emergency reporting service, which can turn around CT scan reporting within 25 minutes; Routine CS – covering a cross-sectional combination of CT and MRI scans; and Routine PF – which covers plain film images; both of the Routine services have a 48-hour turnaround time.

It is showing strong financial performance delivering double digit organic growth. It is highly cash generative and enjoys high levels of repeat revenues.

Gradually its international strategy and broader diversification of services will offer further opportunities for the group.

There are 111m shares in issue. Larger shareholders include: Liontrust (11.7%), M&G (9.72%), CBPE (6.54%), GVQ (6.06%), Schroder (5.42%), River & Mercantile (5.13%), Artemis (5.01%), Independent Investment (3.60%), Standard Life (3.17%), and Merian Global (2.99%).

Estimates for the year to end December 2019 suggest revenues having risen £5m to £45m, with pre-tax profits of £10m, worth about 7p in earnings and triple covering a 2.5p dividend per share.

For the coming year £50m revenue, £12m of profits, 8.5p in earnings and 2.75p per share in dividend.

Some £57m of revenues in 2021 could generate £14m pre-tax, 10p of earnings and 3.2p of dividend per share.

A Trading Update for the end 2019 year can be expected within the next couple of weeks.

Its shares are currently trading at around the 155p level, which capitalises the group at around £172m.

I now set an end 2020 Target Price of 215p.

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