ASX:AHC
Austco Healthcare Ltd
Investment Summary
The fund managers believe that Austco Healthcare Ltd (AHC) is well-positioned for growth despite past challenges. They note AHC's strong recovery in the second half of FY2024, resulting in an EBITDA of $6 million, driven by a record order book, which is up 74% on last year. AHC's turnaround, initiated in 2015 under CEO Clayton Astles, has transformed the company into an innovative player with a focus on high-margin proprietary software. Fund managers emphasize that the company has navigated significant hurdles, including tariffs and supply chain disruptions, successfully adapting to maintain profitability. Looking ahead, they project AHC to achieve a net profit of around $7.5 million in FY25, trading at approximately 15x earnings. Despite concerns over US tariffs, the fund managers remain optimistic about AHC's flexibility and strong market positioning, which they believe will attract a higher trading multiple due to the lack of profitable growth in the small-cap sector.
Commentary From The Managers
Mereweather Capital
28 Feb 2025
$0.28
- Austco Healthcare (AHC) reported revenue at the top end and EBITDA ahead of guidance.
- Positive outlook for the future with new products set for release.
- The market initially rewarded the strong result.
- Concerns around US tariffs led to a sharp sell-off in AHC shares.
- Modest impact from further tariffs expected.
- AHC has experience dealing with previous tariffs from 2018.
- Flexibility in their supply chain to manage challenges.
- Mereweather Capital continues to hold because of AHC's resilience and growth potential.
Mereweather Capital
31 Dec 2024
$0.28
- Austco Healthcare (AHC) announced a first half trading update with revenue guidance of $36-37m and EBITDA of $4.5-5m.
- Both figures are boosted by acquisitions made last year.
- On an organic basis, revenue is projected to grow ~19% and EBITDA ~85%.
- The company typically experiences a stronger second half of the financial year.
- Mereweather Capital continues to hold because AHC is on track for expectations of $12-13m EBITDA in FY25.
- With depreciation and amortisation of ~$3m and a normalised tax rate of 25%, net profit expected around $7.5m.
- Shares trading on roughly 15x earnings are considered a fair price.
- Mereweather Capital believes that the market may trade AHC on a higher multiple due to its growing size and liquidity.
- There is a dearth of profitable growth available at reasonable prices in the small cap sector.
Mereweather Capital
30 Aug 2024
$0.22
- Mereweather Capital views Austco Healthcare (AHC) as a significant investment, now being the largest position in the Fund.
- AHC has faced unique challenges yet has remained profitable, culminating in a strong second half of the financial year.
- Since 2015, AHC has undergone a turnaround under CEO Clayton Astles, focusing on innovation and high-margin products.
- The product portfolio was rationalized from over 900 to less than 300, leading to the launch of the Tacera Pulse suite.
- AHC dealt with supply chain disruptions due to tariffs imposed by the previous U.S. administration, forcing shifts in sourcing strategies.
- Despite the pandemic's restrictions on marketing and sales, AHC adapted to challenges, managing supply chain issues effectively.
- Strategic inventory management allowed AHC to secure contracts that competitors could not fulfill.
- AHC's main competitor faced administration challenges due to similar disruptions, demonstrating AHC's resilience.
- The company's recent financial performance reflects years of groundwork, with a record order book indicating strong future growth potential.
- AHC's $6 million EBITDA in the second half showcases a building momentum, with expectations for strong growth moving forward.
- The recent acquisition only partially contributed to earnings, indicating more potential as the business continues to develop.
- Mereweather Capital anticipates that as past headwinds diminish, AHC's true earnings potential will become clearer.
Please note: The completeness, accuracy or current status of the investments referenced are not guaranteed.