Loaf...I forgot to post this one last week....
PMCO
E Q U I T Y R E S E A R CH Johnson Rice & Company L.L.C. Healthcare Update,Rating: BUY
****Revenues increased 184% year-over-year to $73.1 million, driven by acquisitions and same group growth of 19% year-to-date. ProMedCo has maintained very strong same group growth of 15%+ for the last six quarters, with in-market affiliations accounting for a mere 3% of the increase. Furthermore, same group EBITDA growth is 20%+ year to date. 2Q EBITDA was 8.9%, or 90 basis points higher than last year. Net margin was essentially flat at 4.2%. Capitated revenues accounted for approximately 18% of total and are not expected to increase substantially for the rest of 1998. PMCO ended 2Q with $18.5 million in cash and $23.6 million in long-term debt (excluding the current portion and capital leases). Shareholders' equity was $165 million.
***Competitive advantage. The three industry leaders' recent operating problems have essentially left the competitive acquisition field wide-open for PMCO. The Company' s pipeline is at an all-time high primarily because the fundamentals of the industry have not changed - physicians control, directly or indirectly, 80% of healthcare spending and have few options to obtain the resources they need to compete in an increasingly managed care environment. PMCO' s management efforts are value-additive and physicians are taking notice. The Company has increased the average annual incomes of individual physicians 15%+ after the impact of the management fee (this compares pre-affiliation salaries to 1998 annualized physician incomes of the original eight physician groups). ProMedCo' s straightforward, focused strategy and experienced management team have allowed the Company to remain successful despite industry woes.
***Strong acquisition pace should continue. ProMedCo has had no competition for the last four deals it has completed. Given that management does not expect this limited-competition situation to be long term, we expect a strong acquisition pace to continue despite the low stock price. Recent deals have included very little stock compensation. Although we do not think this trend will continue, ProMedCo would have enough available capital to meet our physician addition estimates of approximately 350 through 1999. The Company' s current $70 million line of credit has about $5 million outstanding and management is expanding its line to $100-125 million. In addition, ProMedCo has seen a resurgence in the appetite for and use of convertible debt in acquisitions.E Q U I T Y R E S E A R CH Johnson Rice & Company L.L.C. Healthcare Update
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