Myriad Medical Holdings (JSE: MYD) offers an indirect route into the defensive pharmaceutical and healthcare environment. The company supplies medical devices, single use consumables and medical capital equipment to hospitals, clinics and doctors rooms throughout the country. It operates seven business units and has local distribution rights for 32 leading agencies and a range of premier brands. The group supplies both the private and public medical sectors, with a 70% to 30% revenue split.
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With the marketing hype out of the way, let’s see what Myriad got up to during its latest six month interim period. Our first observation is that the company achieved its fifth consecutive “positive” trading result in the half-year – an unblemished record since listing in October 2006. Turnover increased by 23% to R132.45m and operating profit was 18% higher at R17.21m. The group improved earnings per share (to 6.5c); but chose not to declare an interim dividend.
We’re sure shareholders appreciate the detailed assessment of cash flow in these difficult times. Of the R17.2m cash generated from operations in the period, Myriad used R9.2m to increase inventories, R2.98m to cover tax charges, R2.55m for increased working capital requirement and R0.8m for fixed assets. The balance was used to buy back shares. Although often a cause for concern, Myriad’s increased inventory is due to operational aspects rather than a slowdown in turnover. Divisions took advantage of discounts, turnover was generally higher, landed costs were higher due to a devaluing rand, etc.
What can investors look forward to for the balance of 2009? The company remains in a growth phase. It will concentrate on increasing market share in existing lines and expanding product offerings by acquiring new businesses and agencies. Recent acquisitions include two leading international agencies that were already established in South Africa. One is a sports medicine agency, which will slot into the company’s Earth Medical division, while the other will distribute surgical products under the Filterworks name.Myriad will have to manage industry challenges, including margin pressures, due to higher import costs, increased regulation and recessionary pressures going forward. The group’s already won the first battle in securing price increases across its product range for 2009. Myriad offers great value at just 50c per share. It’s a small-cap and fairly illiquid – so trade cautiously.
Recommendation: BUY at 50c Market capitalisation: R95.959m
