Growth Focus: Capitol Health Ltd (CAJ)

by Patrick Taylor

Date of Data Capture: 19/7/2018

Name: CAPITOL HEALTH LTD (CAJ)               

Classification: Healthcare Services

Current Price: $0.32

Market Capitalisation: $250M

Forecast EBITDA Growth: 18.93%

Yield Estimate: 1.61%

Consensus Price Target: $0.37

# Covering Analysts: 3

Discount at Current Price: 15.63%

Price Target Trend: Increasing-Flat

Signal Timeframe: Monthly-Weekly-Daily

Trend Bias: Up-Flat / Medium-Short

Short-term: Positive
Medium-term: Positive-Neutral
Long-term: Positive-Neutral

Recommendation: Buy 

 Focus: Capital Growth

Set up Notes:

·    CAJ has been a stock of mixed fortunes and large trends. Here we see good potential for the continuation of their long-term recovery with positive signalling combining well with good fundamentals and forecasting out to 2020.
·    Good recent performance has pushed prices higher on expanding sales, margins, profits and earnings - stronger growth is expected ahead which is mirrored by rising price targets. 
·    Pricing has gone through a major boom-bust cycle, climbing 3500% from 2011-14 and then falling 90% to 2016, we see signs of extension to the long-term recovery uptrend running since 2017, with major resistance breaking last month.
·   Support sits at 30c and 25c with resistance targets higher at 35c, 40c, 50c and beyond.

Our primary focus here is capital gain, we will select our stocks from the ASX Top 500 All Ordinaries Index.

When searching the market for investment prospects we are constantly scanning companies for signs of growth and health, accordingly it is fitting that we take a closer look at diagnostic imaging company Capitol Health Ltd (CAJ) to see if recent strength will lead them to a greater recovery.

Headquartered in Melbourne, Capital Health provides diagnostic imaging services throughout Victoria and Tasmania, providing a wide array of scanning services, ranging from X-rays to Doppler, ultrasounds and nuclear medicine. The company has an active acquisition strategy to boost organic growth, recently picking up nine radiology clinics in Western Australia. A counter note was seen in the failed (but well-targeted) takeover attempt of Integral Diagnostics Ltd (IDX) earlier in the year, and we expect this activity to continue as CAJ builds its presence interstate, within a growing sector that is already undergoing M&A consolidation.

Performance over the last few years has been steady rather than robust, but we are happy to increase our exposure to the healthcare market, backed to be one of the main beneficiaries of the ageing Boomer demographic. While CAJ carries decent forecasts for 2018 - with strongly positive consensus analyst sentiment - growth expectations become more aggressive with very strong earnings forecast out to 2020 on the back of improving margins and profits and sales. As the market tends to be forward looking, we should start to see pricing mirror these expectations and in the meantime the stock is currently discounted by over 15% compared to rising consensus target prices.

One aspect that could be causing investor caution might be Capital’s dramatic pricing history; a 90% fall from 2006 to 2010, leading to a 3500% rise from 2010 to 2015, following yet again by another 90% fall by late 2016. The current emerging uptrend could easily be seen as the continuation of the greater recovery uptrend seen since mid-2017 and this is significant with price breaking through important resistance and out of the year-long 25c to 30c trading range just last month.

In recent weeks we have seen pricing pushed back to test the old resistance ceiling at 30c for support, but this should be a buying opportunity as we see good positive momentum developing across multiple timeframes. With an active acquisition strategy in a robust marketplace, with plenty of growth opportunities available, backed by strong forecasting and an exciting technical setup, we think the potential of Capital Health should be clearly visible to all.


This report was produced by Taylor Securities Pty Ltd, which is a Corporate Authorised Representative (Number 414063) of Bespoke Portfolio Pty Ltd (AFSL 341991). Taylor Securities and Patrick Taylor (Representative number 414064) have made every effort to ensure that the information and material contained in this report is accurate and correct and has been obtained from reliable sources. However, no representation is made about the accuracy or completeness of the information and material and it should not be relied upon as a substitute for the exercise of independent judgment. Except to the extent required by law, Taylor Securities and Patrick Taylor does not accept any liability, including negligence, for any loss or damage arising from the use of, or reliance on, the material contained in this report. This report is for information purposes only and is not intended as an offer or solicitation with respect to the sale or purchase of any securities or financial products. The securities or financial products recommended by Taylor Securities and Patrick Taylor carry no guarantee with respect to return of capital or the market value of those securities or financial products. There are general risks associated with any investment in securities or financial products. Investors should be aware that these risks might result in loss of income and capital invested. Neither Taylor Securities and Patrick Taylor nor any of its associates guarantees the repayment of capital. WARNING: This report is intended to provide general financial product advice only. It has been prepared without having regarded to or taking into account any particular investor’s objectives, financial situation and/or needs. Accordingly, no recipients should rely on any recommendation (whether express or implied) contained in this document without obtaining specific advice from their advisers. All investors should therefore consider the appropriateness of the advice, in light of their own objectives, financial situation and/or needs, before acting on the advice. Where applicable, investors should obtain a copy of and consider the product disclosure statement for that product (if any) before making any decision.

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