Optima Health PLC's (AIM:OPT) half-year figures have given analysts reasons to be upbeat about the year ahead, with two brokers pointing to a firmer outlook built on contract wins and a pipeline that is beginning to convert.
Panmure Liberum said the results were “in line with the recent October trading update, but with an improved outlook from new business wins”.
The firm highlighted the securing of £8.3 million of new contracts since the period end, which it said “underpin our estimates and continues to have a robust pipeline of future opportunities”.
It repeated its 'buy' recommendation and held its target price at 225p, a valuation drawn from a blend of enterprise value to sales and enterprise value to earnings before interest, tax, depreciation and amortisation metrics.
The broker noted that first half revenue rose 17% £59.5 million, lifted by acquisitions and 3% organic growth, although cost pressures and the integration of recent purchases reduced the adjusted earnings before interest, tax, depreciation and amortisation margin to 13.9%.
Panmure said gross margins had been weighed down by the national insurance and real living wage increases, along with changes in cost allocation at Cognate Health, but added that margins should improve as the three recent acquisitions are fully integrated.
It also drew attention to management’s new medium-term ambition to lift revenue above £200 million and adjusted earnings before interest, tax, depreciation and amortisation above £40 million, which it described as “very achievable” given the mix of organic growth, acquisitions and the new transformation programme.
Cavendish, which initiated coverage on Wednesday, also took a supportive stance.
It described Optima as “a profitable, cash generative business with a robust balance sheet and a clear runway for expansion” and started with a 'buy' recommendation and a higher target price of three hundred and three pence, based on a blended discounted cash flow and precedent transaction multiples approach.
Cavendish argued that the shares trade at a sharp discount to recent private market deals, saying Optima “currently trades on an enterprise value to earnings before interest, tax, depreciation and amortisation of 10 times, which represents a substantial discount to the valuation multiples observed in recent UK occupational health transactions” where deals were struck at more than twenty times earnings.
Both brokers agreed that the market backdrop is favourable. Panmure Liberum cited high demand driven by the rise in long-term sickness and government interest in keeping people in work, while Cavendish cast Optima as the market leader in a defensive sector underpinned by legislation, rising employer costs linked to absence and an increasing corporate focus on wellbeing.