While Covid has been an unwelcome interruption for international teleradiology specialist Medica Group PLC (LON:MGP), “the company has still been able to take great strides in executing on its strategy and the growth potential of the business remains strong”, says Stuart Quin, chief executive.
Pre-lockdown, Medica fleshed out plans to double revenues in five years. It said it would invest GBP5mln-GBP6mln as part of a scale-up, with a push into international markets and new business areas also firmly on the agenda.
“We set ourselves high targets – on which the impact of Covid remains to be seen,” says Quin. “But the fundamental market opportunity remains really strong.”
The Royal College of Radiologists is predicting a shortage of up to 3,300 radiologists in the UK by 2024.
Medica is in a position to help pick up this slack as it runs a team of specially trained doctors that can remotely access and assess MRI and CT scans, as well as x-rays.
It works with over 100 NHS hospitals offering two distinct services: NightHawk, which provides round-the-clock emergency reporting and Elective, which supports the diagnosis and management of a wide range of ailments from suspected cancers to joint replacements and slipped discs.
While NightHawk has staged a strong rebound, the on-off lockdown has affected the Elective work.
Medica is predicting business will recover and that there will be a “sustained period of demand to deal with the backlog of work that has built up over the last year”.
“Exactly when this recovery will transpire this year is difficult to predict,” adds Quin.
A lot will depend on how the NHS decides to deal with the backlog of elective procedures and just which resources it calls upon.
The disruption, meanwhile, has resulted in a 21% fall in 2020 revenues. Gross margins remained steady at just over 47%, and Medica remains conservatively geared – even after a significant acquisition.
November’s purchase of Global Diagnostics Ireland (GDI) for GBP14.5mln fits “perfectly” with Medica’s plans to expand geographically and diversify its telemedicine offering.
Acquisition proves a good fit
GDI, which employs 140 people at 50 clinical sites, is “just one step removed from what we currently do and close to our sweet spot”, says Quin.
By this, he means there is significant cross-over in teleradiology, along with the introduction of a new business vertical – diabetic retinopathy screening services.
“GDI also has good exposure to the private hospital and insurance market in Ireland,” Quin points out.
Medica’s longer-term plan is to continue in this vein of incrementally widening its telemedicine offering, potentially taking in ophthalmology and pathology as well as branching out into clinical trial imaging services.
In the background, Medica is also transforming its backbone systems to support growth plans.
It is part of what the company describes as its ‘FutureTech Jigsaw’, which starts with the move of its picture archiving and communications system (PACS) to imaging specialist Sectra. The new system will be live in the first quarter of next year.
Its orchestrator system, meanwhile, will automate the process of allocating work to radiologists and the new systems will enable flexible deployment of what Medica terms ‘augmented intelligence’.
AI is also being used to help radiologists better interpret images. Its urgent stroke augmented intelligence tool is now live and Medica says it has contributed to the care of around 15,000 patients so far.
The partnership with Qure.ai that developed the technology reveals the company’s direction of travel.
Pre-lockdown, the shares were changing hands for 165p. Since mid-to late-November, they have traded in a very narrow range of 120-130p.
Analysts covering Medica think the stock is worth anywhere between 150p and 180p based on the current outlook for the business and its growth plans.
Broker N+1 Singer sees revenue recovering from GBP36.8mln to GBP52.8mln this year, hitting GBP62.5mln by year-end 2022, with adjusted underlying earnings (EBITDA) jumping from GBP7.2mln to GBP13.6mln in that period.
Analyst Chris Glasper notes: “Whilst there will be concerns over the potential longevity of the latest lockdowns, we continue to believe Medica is well placed to benefit in helping the NHS in clearing the backlog of cases and returning to some form of normality.”
He also points out that the company is the UK leader in teleradiology with “multiple opportunities for medium-longer term growth under new and revitalised leadership”.
“Teleradiology and the wider telehealth market has come into its own during the crisis, and Medica offers the best way for UK investors to play this theme,” he concludes.