27 May 2013

Ian Munro
imunro@ccz.com.au
+61 (0) 3-8605 7902

Recommendation: BUY, target price to $0.27 (from $0.21)

Share price: $0.23
Year end June
Revenue ($m)
EBITDA ($m)
Net Profit ($m)
EPS (cps)
EPS growth
PER (x)
DPS (cps)
Yield (%)
EV/EBITDA

Market Cap: $98m

2012A
52.2
5.7
2.1
0.6
115.8%
36.5
0.40
1.7%
18.2x

2013E
61.7
7.7
3.5
0.9
44.8%
25.2
0.45
2.0%
13.9x

2014E
85.5
12.7
5.8
1.4
49.1%
16.9
0.75
3.3%
8.0x

2015E
90.8
15.4
7.6
1.8
30.5%
12.9
1.00
4.3%
6.2x

CAJ price history Source; IRESS

$0.24
$0.20
$0.16
$0.12

$0.08
$0.04
$0.00

The MDI diagnostic imaging group acquisition settled on 1 May 2013, for an enterprise valuation of c$15m.
We expect MDI to contribute $0.5m profit before tax (PBT) for FY13, out of the total $5m group PBT forecast.
The EPS accretion is forecast to be 22% in FY14 and 32% in FY15. Productivity gains (i.e. 10% shorter
consultation times) within MDI under new ownership could generate an additional $0.76m EBITDA or +6% to
our FY14 EPS, on top of $0.6m of synergies already in our forecasts. We expect EPS growth of 49% during FY14,
above company guidance of a 25%+ EPS increase. General trading conditions have been solid during 3Q13.
CAJ acquired 11 MDI Clinics, comprising 5 large full service clinics and 6 smaller sized clinics. Clinics are
located in the S/SE suburbs of Melbourne with a hub and spoke model, similar to the Capitol Health structure
and importantly two fully licensed MRI machines. MDIs larger clinics include an out of pocket charge on c40%
of scans, providing a template for how the charging structure may change within some of the 15 larger Capitol
Health clinics. Only c20% of scans include out of pocket charges, within the Capitol branded clinics. We expect
average pricing pressure of 3%-4% and volume growth of 4%-5% on scans within large clinics during FY14-FY15.
The Federal Budget re-affirmed that from Nov 2013 GPs will be able to refer scans and request Medicareeligible MRIs for patients over the age of 16 for a set of clinically approved indications. The Budget allows
additional program expenses of c$582m for each of the next 4 years and permits an additional 10 MRI machines
in that period(currently c130 MRI machines are fully licensed Australia-wide). These measures are consistent
with our theory of restricted supply of radiology, higher out of pocket charges and growing GP awareness and
referral rates of MRIs (70% of all Capitols scans are referred by GPs) and likely pressure on competitors who
cannot substitute CTs with MRI.
Valuation: Our valuation has risen to $0.27 per share, with a 100% weighting to DCF. BUY Recommendation.
Next Catalysts: further uplift in demand for MRI scans and potential for higher out of pocket charges, new clinic
and MRI license acquisitions. FY13-FY15 forecasts assume volume/price growth in scans but no new clinics.
Disclaimer: CCZ acted as lead manager to the $7.3m capital raise, executed in March 2013 and received a fee for
providing this service. The author of this report holds a beneficial interest in CAJ shares.

CCZ EQUITIES PTY LIMITED LEVEL 24, 9 CASTLEREAGH STREET, SYDNEY NSW 2000
GPO BOX 5045, SYDNEY NSW 2001 TEL: 61 2 9238 8238 FAX: 61 2 9231 0822 EMAIL: CCZ@CCZ.COM.AU
This is a research publication of CCZ Equities Pty Limited ABN 97 085 277 881 as a Corporate Authorised Representative
reference number 273728 of CCZ Statton Equities Pty Ltd ABN 16 104 843 370 AFS Licence 239946.

imunro@ccz.com.au

Investment thesis & Key Drivers

MDI synergies FY14-FY15 & Government backed revenue = high quality of earnings. Improved
forecast free cash flow to c$9m by FY15e (9% free cash yield) from a forecast $6.6m in FY13e.
Increase in utilisation of the 5 Capitol Health and 2 MDI owned MRI machines following regulatory
changes allowing Medicare rebate on certain MRI scans for children (aged < 16 years) on 1 Nov 2012.
MRI scans /machine /day likely rose to 13 in December 2012 (from 8 in July 2012). Partial & full
licensing of the 5 MRI machines is due to occur in November 2013, applicable for adults (> 16 years
old) referred by GPs for certain scans. We expect close to 100% utilisation on these MRI machines to
occur by FY15 and excess demand to facilitate a higher rate of out of pocket charges on MRI scans.
There is also excess capacity in the 2 MDI owned MRI machines to absorb greater demand for MRI
services. Profitability within competing community health imaging clinics is likely to come under
pressure if they do not have an MRI license. The broadly comparable CT scan cannot be discounted
below the bulk billing rate (as per Federal Law) giving little competitive fire power as a response.
Higher volume ultrasound and X-Rays normally cover costs for diagnostic imaging centres, whereas
the CT scans generate the highest margin and excess returns above costs. Profitability pressure within
those centres unable to offer MRIs is likely to accelerate industry consolidation and perhaps provide
acquisition opportunities for Capitol Health.
Higher MRI demand and increasing utilisation of the remaining scan machines (CT, Ultra Sound, and
X-Ray) driven by IT technology, operational efficiencies across the 21 larger clinics and competitive
advantage through independence from hospital & GP networks, plus superior follow up post scan.
EBITDA margin improvement to 12.7% in FY13 and 14.9% in FY14 (from 11.0% FY12), driven by higher
machine utilisation, revenue expansion, fixed cost leverage and the inclusion of MDI. Every $1 of
revenue from here has a 30% variable cost (technician).
Opportunities for new clinic expansion within Victoria and potential to take advantage of industry
consolidation. Capitol Health is currently just in Victoria with an optimal management structure and
differentiation based on flexible employment terms and more autonomy for radiologists.
Favourable industry backdrop, with growth in the scan market of 4%-6%, driven by an ageing
population and shorter GP consultation times. MRI demand growth is forecast to be 7%-8% pa.
The CAJ imaging centres are strategically located North, South West, West and East according to a
hub (CT Scan/MRI/Nuclear Med) and spoke (Ultrasound, X-Ray) model. Positioning of MDIs 11 clinics,
mostly in the SE suburbs, includes only 1 clinic with overlap whilst adding a new set of GP, Physio and
Dentists to the referral base.
The combined group is on track for over 650,000 scans in FY14. Industry trends towards out of
pocket charges are likely to accelerate as the supply of radiology services remains flat. A $10 charge on
10% of scans, would generate $0.65m in revenue, c$0.5m would fall to the bottom line or +9% to EPS.
The radiology industry may shift towards simultaneous patient and Medicare payments under a
Coalition Government, increasing the adoption of out of pocket charging on scans.
A 10% improvement in productivity / reduction in average consultation times for MDI under new
owners could potentially add $0.76m EBITDA or 6% to group earnings in FY14, on top of our forecast.

27 May 2013

imunro@ccz.com.au

Trading Update released to the ASX on 9th April 2013

9MFY13 unaudited PBT of $3.3m (+27%), including 3Q13 PBT of $1.2m. PBT growth is likely being
driven by the mixture of volume growth in the number of scans in Capitals larger clinics (statistics
provided by Medicare Australia on diagnostic imaging grew by 5% between 2012 and 2013 and 6%
between 4Q11and 4Q12). Capitols volume growth is also likely being assisted by IT efficiencies and
improvements to patient management.

Price inflation on MRI & CT scans is also a positive driver. Demand for MRI scans has likely tightened,
post the changes to referral structure, allowing GPs to refer child patients (< 16 years old) directly to
diagnostic imaging centres and the associated costs coming under the bulk billing framework.

Average number of scans per MRI machine per day have likely increased to c13/14 scans in 3Q13
from c8/9 per day pre the MRI referral changes in 1Q13. The real kicker here is still on track for
November 2013, when the adults come under the Medicare rebate and direct GP referral structure,
predicating an expected increase in MRI utilisation > 20 scans per machine per day and potentially
triggering an increase to out of pocket charges.

ROE accretion with MDI: Revenue still skewed to the larger Capitol Health clinics.
ROE

Split of Revenue FY14e $m

MDI an ROE accretive acquisition FY14-FY15e.

Source; CCZ Equities,

source: CCZ Equities

19%

17%

ROE (ex MDI)

15%

NEW ROE with

MDI

6 small MDI
clinics , 2
5 large MDI
clinics , 21
3 nuc med
capitol
clinics, 6

13%
11%

15 large
Capitol
clinics , 49

21 small
large
Capitol
clinics , 7

9%
7%

2012

2013e

2014e

2015e

MDI Acquisition

Expected synergies of $0.6m between FY13-FY15, based on finance synergies of $0.45m and
operating synergies (Telco/Insurance/Systems) of $0.15m. There will be zero cost of attaining these
synergies and the finance synergies will be realised in year 1. There arenil staff synergies included in
the $0.6m total synergy forecast and none included in the assumption of EPS accretion.

Higher staff productivity has the potential to double our synergy assumptions, although these are
difficult to gauge during the early stages. A 10% improvement in productivity / reduction in average
consultation times could potentially add a further $0.76m EBITDA or 6% to group earnings in FY14.

IT platforms and staff arrangements and employment contracts will be largely left alone during
FY13e in order to maintain the existing profitable structure and patient volumes and not open CAJ up
to unnecessary levels of integration risk. Key radiologist staff have been retained on long term
employment contracts.

CCZ Forecast uplift in ROE from c11% in FY13e to c19% in FY15e, from margin uplift and EPS accretion.

CCZ forecast CAJ will continue maintaining a dividend payout ratio of 50%-55% of reported EPS.

27 May 2013

imunro@ccz.com.au

Capitol runs a bulk billing, referral based community services model and aims to be the lowest cost in
the industry. MRI, by contrast, has a far higher proportion of out of pocket charges (almost 40% of
scans include out of pocket charges), providing Capitol a template to use in pricing imaging scans in
appropriate demographics.

MDI adds a premium, higher value scan (CT/MRI) and more out of pocket charge based model
$/scan

15 large Capitol clinics higher volume than the 5

large MDI Clinics source: CCZ Equities

260
240

130

5 large MDI clinics: higher value scans than 15

large Capitol clinics source: CCZ Equities

220

120

110

200

Capitol Ave
Scans/Day/Clinic

100

80

Capitol ave $ / scan

180

MDI ave
Scans/Day/Clinic

90

160

MDI ave $ / scan

140

70

120

60

100

50

80

40
2012a

2013e

2014e

2012a

2015e

2013e

2014e

2015e

Volume growth across the larger Capital (15 large clinics) and MDI (5 large clinics) imaging centres is
likely to track at 4%-5% volume growth between FY13-FY15, in line with industry growth.

Some cannibalisation of CTs may occur during this time, however this will be compensated by higher
MRI demand, potential to charge out of pockets in Capitol clinics on MRIs and also, the notion that
Capitol clinics have another 2-3 years of industry growth rates levels, to reach full scan capacity on
existing machines.

There is potential for larger clinic opening hours to be extended beyond 9-5:30, as far as 8:00-19:30
in some to capture unfilled MRI demand.

Historical earnings growth in the MDI business has been tracking in the single digits at the PBT line,
driven by c5%-6% volume growth in scans and upward trajectory of scan charges, based on out of pockets
on CT & MRI.
Finance Synergies
(based on MDI debt position on acquisition)

MDI Bank Debt $m 1H13

interest on MDI bank debt pre-synergies @ 8.6% (bbsw +560)
interest on MDI bank debt post synergies @6.1% (bbsw +300)
finance synergy on MDI bank debt $m
MDI Finance Leases $m 1H13
interest on MDI finance leases pre-synergies @10.5%
interest on MDI finance leases post-synergies @ 8.5%
finance synergy on MDI finance leases $m
MDI shareholders Loans/notes $m
Interest payable on MDI shareholder loans / notes @ 7.3%
Savings on paying down the MDI shareholder loans as part of deal
Total Finance Synergies $m

27 May 2013

$m

2.80
0.24
0.17
0.07
4.2
0.44
-0.36
0.08
4.10
0.30
0.30
0.45

$m synergies to
Combined MDI & CAJ Cost Base FY13e $m run rate
be captured FY14(based on annualising 1H13 results) (pre-synergy)
FY15
Total Operating Expenses FY13e
-64.26
-0.15
Employment
-45.67
0
Telephone
-1.36
-0.025
Equipment costs & servicing
-3.62
-0.05
Technical & Medical Supply
-3.85
-0.05
Insurance
-0.63
-0.025

imunro@ccz.com.au

Out of pockets an industry trend: Revenue share from MRI c20% by FY15 (from 5% in 1H13)
100

90

Patients paying 54% higher out of pocket charges

for scans in VIC since '07. Source: Medicare, CCZ.

Estimated revenue share by scan

1H13 $m Source; CCZ Equities,
BMD/Nuc
Med
4%

MRI
5%

Services
3%
X-Ray
24%

80
CT Scan
30%

70

Ultrasound
34%

60

Average Patient Contribution Per

Service - Patient Billed Only $

50

40
Mar '07 Sep '07 Mar '08 Sep '08 Mar '09 Sep '09 Mar '10 Sep '10 Mar '11 Sep '11 Mar '12 Sep '12 Mar '13

Recent Federal Budget re-affirms funding support for MRI

The Federal Budget in May re-affirmed that from November 2013, GPs will be able to refer scans and
request Medicare-eligible MRIs for all patients over the age of 16 for a small set of clinically approved
indications (Head, Shoulder, Arm, Spine). This builds on the 2012-13 initiative to extend Medicare
requesting right to GPs for children (< age 16), applicable 1 November 2012.
The Budget allows additional program expenses of c$582m for each of the next 4 years and permits an
additional 10 MRI machines (currently c130 MRI machines are fully licensed Australia-wide), to be licensed
and brought under Medicare eligibility across Australia between now and 2016. This clears any minor
questions on Government funding/policy on MRIs, and clarifies that only a small number of MRI licenses
will be issued over the coming three years, all of which re-affirms our forecast benefits of MRI demand for
Capitol Health.
Diagnostic Imaging Review Reform Package 2011-12: In 2012, the Government increased the provision of
full and partial Medicare eligible MRI units throughout Australia to a total of 341. Of these, 130 units are
Medicare eligible MRI machines, across Australia, with 97 in Metropolitan areas and 33 in regional areas.
Applicable from 1 November 2012, six new GP requested items for patients < 16 years old were added to
the Medical Benefits schedule.
Included within the better Access to MRI package, was $104m funding over 4 years to expand patient
access and increase the bulk billing incentive to 15% of the schedule fee (from 10%) as of 1 May 2012. As
part of the package announcement in May 2011, the then Federal Minister for Health and Ageing, Nicola
Roxon, licensed 60 existing MRI machines in metropolitan regions (including 3 Capitol Health MRI
machines) and 6 in regional areas.
It should become faster and easier (and cheaper via the rebate) for GPs to refer an MRI, which in many
instances is a superior diagnostic technology to the CT scan and inflicts less radiation. On our projections,
each MRI license is likely to be worth $5.4m in its own right by FY15. The Medicare rebate on MRIs
increased also to c$400/MRI from 1 Nov 2012, with variances based on the nature of the scan.
GPs are the main referral base for Capitol Health, generating 70% of referrals. 5%-10% come from
Dentists/Chiropractors and c20% from Physios and specialists. Some hospitals have their own exclusive
radiology centres and 40% of all radiologists work in private hospitals. CAJ has opted not to form a
strategic alliance with hospitals and instead, targets a broader base of GPs. Hospitals have a large back log
of readymade in-house patients to service and therefore do not have the incentive or resources to
attract outside patients.

27 May 2013

imunro@ccz.com.au

Diagnostic market costs & margins

The average MRI costs $300-$400 in out of pocket expenses (prior to 1 Nov 2012 Capitol could not bulkbill on GP referrals). The average rebate on a CT is $220-$250 (bulk-billed), Ultra Sound is $100 (bulkbilled) and X-Ray is $50 (bulk-billed). In Australia there are 130 MRI full licenses post the Government
changes on 1 Nov 2012, of which around 40 are located in Victoria and 23 in Melbourne. Of these, only 10
are outside of hospitals, of which Capitol Health holds 7. No new licenses have been issued since 2007.
It is important for the Government to restrict supply in this space and maintain health/customer service
levels. CT and MRI are the highest margin imaging services. There are only low margins in the Ultra Sound
(US) and X-Ray (XR) services because the cost is the same as the government rebate and there is limited
room to charge the patient out of pocket expenses under current industry conditions. US and XR services
are bankable, high volume services and keep the patient numbers ticking over to cover fixed costs.
Revenue from MRI is likely to be 20% by FY15 (from 5% in 1H13)
$/Scan
500

Est. scan cost range- Capitol.

450

Source: CCZ Equities.

400

30%

380

400

350

480

5% p.a scan growth in VIC & higher

Government funding Source: Medicare, CCZ

1,600,000
1,400,000

1,200,000

300

300

220

250

20%

250

1,000,000

800,000

200
150
100

45

60

90

% out of pockets by $ lhs

110

10%
no. of scans/qtr in and out of
hospital rhs

50
0

MRI
low
cost

MRI
high
cost

CT
CT X-Ray X-Ray Ultras Ultra Nuc Nuc
Scan Scan low high Sound Sound Med Med
low high cost cost low high low high
cost cost
cost cost cost cost

600,000
400,000
200,000

0%

Mar Sep Mar Sep Mar Sep Mar Sep Mar Sep Mar Sep Mar
'07 '07 '08 '08 '09 '09 '10 '10 '11 '11 '12 '12 '13

1H13 shortfall in current assets to liabilities of $3.7m: an efficient balance sheet

At 31 Dec 2012 there was a gap in receivables of $1.3m to be collected vs. payables of $4.3m. This is
due to the timing of payments from debtors and to creditors. The shortfall is actually Debtor
collections which on average turn around in 2-3 days as monies are received by patients via credit
cards for the full amount plus out of pocket (the patient then gets bulk billed the claimable amount
from Medicare). This means that at a point in time, the level of receivables is very low as the revenue
is received and the cash follows in 2-3 days on average, clearing the balance sheet carrying item.
On the payables side, creditor terms for CAJ on average are < 30 days. CAJ payables include outgoings
in tax to the ATO, GE Finance for machine leases, Property Leases, Staff and Payroll, Cleaners etc. With
c$25m of cash costs incurred during 1H13, including $17m of employee costs, carrying $4.3m worth of
payables is a reasonable position at 31 Dec 2012. CAJ has transitioned payables to direct debit
wherever possible, in order to minimise the carrying value and shorten the working capital cycle. In
many cases, such as rental outgoings, payments are generated 3 months in advance.

Under current circumstances, the shortfall of current assets to current liabilities will likely wind
down to zero in 12-24 months as revenue & cash collected increases over a relatively fixed cost base.

Current liabilities are also partially inflated by c$1.6m of forward 12 month finance lease obligations
aggregated as liabilities, when the income associated with these machines is collected on a monthly
basis over those 12 months. If the Income/EBITDA from these machines was theoretically aggregated
on the current asset side, this would add c$14m to current assets and alleviate the imbalance.

27 May 2013

imunro@ccz.com.au

Relative valuation with 2 large cap Health stocks

Health Sector -Valuation Summary .

Company

Share
Price

Primary Health (PRY) 5.11

Sonic Health (SHL)
14.73
Capitol Health (CAJ) 0.23
Average
CAJ vs. Average

Cap $m

2570.3
5847.8
98.8

EV/
EV/
EV/
NPAT
EPS % EPS % EPS % EPS % P/E P/E P/E
EBITDA EBITDA EBITDA
'13e $m
'12a '13e '14e '15e '12a '13e '14e
'13e '14e '15e

150.9
382.4
3.1

9.3
11.4
13.9
10.4
34%

EBITDA
P/E Yield Yield
P/ CFPS ROE %
margin
'15e '12a '13e
'12a FY13e
'13e

8.7
8.3 44% 30% 11% 9% 22.2 17.0 15.3 14.1 2% 3% 26.2% 12.0 5.6%
10.6 9.8 8% 2% 9% 9% 18.2 17.7 16.3 14.9 4% 4% 18.9% 11.9 13%
8.0
6.2 116% 45% 49% 31% 36.5 25.2 16.9 12.9 2% 2% 12.7% 13.4 11%
9.7
9.0
20.2 17.4 15.8 14.5
17.4 12%
-18% -31%
80% 45% 7% -11%
-23% -11%

Source; CCZ Equities & Reuters Consensus

The discount for size is overdone: CAJ trades at an EV/EBITDA discount of 18% and 31% respectively to
peer group in FY14e and FY15e.
We forecast CAJ earnings to accelerate strongly in FY15, as they will include a full 12 months of the
adult MRI regulatory changes, MDI synergies, improved critical mass, efficiency and margin expansion,
plus an evident squeeze on other industry players without the capacity to offer MRI.

Company History
Capitol Health model- CAJ invests in the relationship between the referrer (70% GPs) and the radiologist,
providing close consultation with referrers and sharing resources for bone, prostate etc specialists in
Melbourne by sending scans across the IT network. Capitol takes a partnership approach with the 30
radiologist employees, providing flexible work arrangements where possible and a mix of
performance/base packages and part/full time and management responsibility.
Competition- The top 6/7 players in radiology control c50% of the domestic market, unlike pathology
where the top 3 control 90% of the market. Industry evidence suggests that there are 4 hour waits for an
MRI in many Primary hospitals. Medicare/Childcare is not means tested. Primary has introduced incentive
based remuneration schemes to its radiologists, which may encourage competition for patients. Outside of
Primary, DCA and Capitol Health/MDI in Victoria, the employment opportunities for radiologists drop away
significantly. The MDI ownership model (with 7 partners) was unique across the industry; the balance of
smaller players each have 2-3 clinics and typically the same number of partners. The field drops off
significantly after Capitol Health in Melbourne.
Management & Register Structure- 4-person board, including the MD & CFO and 2 non-executive
directors (none of whom are currently independent, although this may change). Between them, the board
own 47.5m shares or 13% of issued capital. Of the register, 25% is owned by founders, 30% by institutions,
25% by retail, 10% by directors and 10% by radiologists.
Clinton Athaide recently joined the Capitol Health management team. As a former MDI partner with
extensive diagnostic imaging and community health industry experience, Clinton strengthens the
management structure around MD John Conidi. He is ideally suited to help drive the MDI integration and
MRI/out of pocket strategy.

27 May 2013

imunro@ccz.com.au

Capitol Health- Sensitivities & Risks

Regulatory risk: sensitivity to Federal Government regulation and bulk billing levels as stipulated
within the MBS and Federal Budget in May 2013.
The number of scans (full or partial) covered within the new MRI license arrangements from MBS:
elbow, head, shoulders, hands, feet are the most likely categories to be licensed.
Attracting and retaining high quality radiologists on reasonable employment conditions
Availability and cost of equipment finance and credit.
Fleet upgrades (less of a risk as the average useful life of MRI/CT/US and X-Ray is between 10-15
years) and all of the Capitol Health machines are run on operating lease agreements, with straight line
charges. It is likely that the MDI machines will also be transitioned from finance lease to operating
lease, once upgrades occur.

Capitol & MDI Geographic Footprint: Excellent hub and spoke coverage.

27 May 2013

imunro@ccz.com.au

Analyst: Ian Munro e: imunro@ccz.com.au p: (03) 8605 7902

Publication Date: 24 May 2013

Capitol Health (CAJ.AX)

STOCK INFORMATION

Share Price (AUD)

$ 0.23

Market Cap (AUD)

Capitol Health Provides facilities and diagnostic imaging services to the

healthcare industry via 51 clinics and 30 radiologists throughout
Melbourne and regional Victoria. Services include X-Ray, Ultra Sound, CT
Scan, MRI, Nuc Med & Bio Medical Scans. Scan costs vary by site and type (XRay c$55, US c$100, CT c$225, MRI c$320). Capitol operates a hub and spoke
model, with the 30 smaller clinics referring scan patients through to 21 large
clinics which account for c80% of revenue. X-Ray, US, CT and limited MRI
scans attract a medicare rebate. CAJ maximises machine utilisation through
resource allocation and IT invesment.

Target Price (AUD)

$ 0.27

Shares (fully diluted)

Recommendation

BUY

RETURN ANALYSIS

1yr TSR Potential

Year End

98.8m

429.5m
30-Jun

20.7%

2011A

2012A

2013E

2014E

2015E

0.29
22%
329.0
0.32
32%

0.63
116%
338.2
0.67
112%

0.91
45%
382.8
0.81
20%

1.36
49%
429.5
1.36
68%

1.78
31%
429.5
1.78
31%

PE on adj EPS
PE - Market
PE Relative

78.7x
14.7x
435.2%

36.5x
13.6x
168.0%

25.2x
14.6x
72.4%

16.9x
13.2x
28.0%

12.9x
12.2x
6.1%

Dividend (AUD cps)

Franking
Dividend Yield
Payout Ratio

0.00
100.0%
0.0%
0.0%

0.40
100.0%
1.7%
59.5%

0.45
100.0%
2.0%
55.6%

0.75
100.0%
3.3%
55.1%

1.00
100.0%
4.3%
56.3%

26.9x
51.5x
77.6x
8.6%
4.5%
4.8%
7.7%

18.2x
29.2x
34.4x
11.0%
6.8%
8.7%
12.9%

13.9x
19.1x
21.4x
12.7%
9.2%
10.5%
16.0%

8.0x
10.7x
12.1x
14.9%
11.1%
16.0%
23.5%

6.2x
8.1x
8.7x
17.0%
12.9%
18.9%
30.9%

Adj EPS (AUD cps)

adj EPS %
Weighted Shares (m)
reported EPS (AUD cps)
reported EPS %

EV/EBITDA
EV/EBIT
EV/PBT
EBITDA/Sales
EBIT/Sales
ROE
ROFE
VALUATION SUMMARY
Models (AUD/share)
DCF
DDM
PE
Weighted Avg

0.27
0.13
0.20
0.27

Valuation Weighting
DCF
DDM
PE

100.0%
0.0%
0.0%

PROFIT & LOSS (AUD'm)

Revenue
Operating Cost
EBITDA
D&A
EBIT
Net Interest
Pre-Tax Profit
Other Significants
Tax
Reported NPAT
Underlying NPAT
Income Growth
EBITDA Growth
EBIT Growth
Underlying PBT Growth
Reported NPAT Growth

27 May 2013

DCF - Key Inputs

WACC
Cost of Equity
PE - Key Inputs
Target PER relative
Discount Rate
PV of EPS
PV of Dividend
PE Valuation

DDM - Key Inputs

Retention Ratio
Expected Growth

13.3%
13.5%
2013E
90.0%
99.5%
0.11
0.00
0.11

2014E
90.0%
94.8%
0.16
0.01
0.17

40.5%
4.3%
2015E
90.0%
90.4%
0.20
0.01
0.20

2011A

2012A

2013E

2014E

2015E

45.6
(41.7)
3.9
(1.9)
2.0
(0.7)
1.4
0.0
(0.4)
1.0
1.0
25.0%
8.0%
8.0%
100.0%
100.0%

52.2
(46.6)
5.7
(2.1)
3.5
(0.5)
3.0
0.0
(0.8)
2.1
2.1
14.5%
44.9%
73.0%
120.6%
121.8%

61.7
(53.9)
7.7
(2.1)
5.6
(0.6)
5.0
(0.4)
(1.5)
3.1
3.5
18.1%
36.9%
59.1%
67.5%
45.1%

85.5
(72.8)
12.7
(3.2)
9.5
(1.1)
8.4
0.0
(2.5)
5.8
5.8
38.7%
64.0%
68.7%
67.2%
88.8%

90.8
(75.5)
15.4
(3.6)
11.7
(0.8)
10.9
0.0
(3.3)
7.6
7.6
6.2%
21.1%
23.7%
30.5%
30.5%

imunro@ccz.com.au

BALANCE SHEET (AUD'm)

Cash
Receivables
Inventory
Other
Current assets

2011A
1.2
1.2
0.0
0.4
2.8

2012A
1.7
1.3
0.0
0.8
3.8

2013E
5.1
2.5
0.0
1.1
8.7

2014E
8.2
2.1
0.0
1.1
11.5

2015E
11.1
2.3
0.0
1.1
14.5

9.4
20.9
0.6
30.9
33.7

8.7
23.4
1.0
33.2
37.0

17.1
26.9
2.7
46.6
55.4

15.4
28.8
2.7
46.9
58.4

13.8
28.8
2.7
45.2
59.7

Creditors
Short term debt & finance leases
Current tax liability
Employee Benefits
Current Liabilities

5.1
1.9
0.1
0.7
7.7

4.6
2.1
0.8
0.9
8.5

4.9
3.5
0.4
2.8
11.6

7.5
3.5
0.4
2.8
14.2

8.0
3.5
0.4
2.8
14.6

Long term debt & finance leases

Other & Employee benefits
Total Liabilities

5.5
0.3
13.5

3.5
0.5
12.5

10.0
0.5
22.2

7.0
0.5
21.7

4.0
0.5
19.2

Total Shareholder Funds

Total Funds Employed

20.2
24.5

24.5
26.3

33.2
38.1

36.6
35.4

40.5
33.4

Liquidity and leverage ratios

NTA per Share $
Net Debt (cash) / Equity
Cash Balance $ per share
Net Debt (cash) / EBITDA
Est franking credit balance $m
Est franking credits per share $

(0.00)
20.7%
0.00
1.1x
0.2
0.00

0.00
7.3%
0.01
0.3x
0.5
0.00

0.01
15.5%
0.01
0.6x
0.8
0.00

0.02
(3.8%)
0.02
(0.1x)
1.2
0.00

0.03
(21.6%)
0.03
(0.5x)
1.6
0.00

CASHFLOW (AUD'm)

2011A

2012A

2013E

2014E

2015E

4.5
(0.7)
(1.8)
2.0

4.8
(0.5)
(1.5)
2.8

7.1
0.9
(1.4)
6.6

9.1
(3.0)
(1.5)
4.6

11.3
(0.3)
(2.0)
9.0

0.6
37.7x
1.0x
2%

0.8
27.6x
0.7x
3%

1.7
13.4x
0.7x
7%

1.1
21.5x
0.5x
5%

2.1
11.0x
0.6x
9%

2011A
34
13
104
100
35.0

2012A
37
15
108
101
39.7

19
10.2

22
11.8

2013E
48
15
113
103
45.5
5.0
68
222
3.3
28
12.0

2014E
48
15
118
106
48.7
5.0
71
228
21.2
28
15.2

2015E
48
15
122
110
52.0
5.0
74
233
22.5
28
15.9

Interim Results
Revenue
EBITDA
NPAT
EPS (c)

1H13a
28.5
3.2
1.4
0.4

2H13e
33.2
4.6
1.7
0.5

Fixed Assets
Intangibles
Other
Non-Current Assets
Total Assets

Gross Cash Flow

Change in Working Capital
Net Capital Expenditure
Free Cash Flow
Free CFPS (AUD cps)
Price / Free CFPS
Capex / Depreciation
Free Cash Yield %
SEGMENT INFORMATION
Total Capital & MDI Clinics
Capital large clinics
ave scans per day
ave $ per scan
Capital large clinic revenue $m
MDI large clinics
ave scans per day
ave $ per scan
MDI large clinic revenue $m
Capital & MDI small & NUC med clinics
small & nuc med revenue $m

SUBSTANTIAL SHAREHOLDERS
Shareholder (post capital raise)
1. Idinoc (J Conidi)
2. Ms Stella Ha
3. Peter & Janet Hunt
4. Bond Street Custodians (Bkohn)
5. Gia Chau Pty Ltd

27 May 2013

Holding
7%
4%
6%
6%

DPS (c)

0.30

0.15

4%

EBITDA margin %
Free Cash Flow $m

11.1%
1.1

13.8%
5.4

10

imunro@ccz.com.au

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Institutional Research Sales

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27 May 2013

11