Healthia (ASX:HLA) has been one of our top holdings for a while. HLA operates an integrated portfolio of allied health businesses, which includes My FootDr, Allsports Physiotherapy, Extend Rehabilitation, iOrthotics and DBS Medical Supplies.
The below graphic showcases HLA’s operating businesses:
We believe HLA has a good pipeline of growth from rising demand and acquisitions.
Healthy response to aging population
Allied health professionals are health professionals that are not part of the medical, dental or nursing professionals. They include physiotherapists, hand therapists, occupational therapists, osteopath, optometrists etc. Allied health professionals support patients with disease postponement and recovery. They mainly deal with (a) prevention of risk factors for diseases; (b) reduction of the prevalence of risk factors before diseases develop and (c) setting treatment and recovery management plans.
Let’s take physiotherapists as an example. Physiotherapists may have to assess the physical condition of patients from work injury. They diagnose problems and implement treatment plans. Their main duties are to help the clients return to a normal lifestyle. This includes re-training patients to walk, helping them to cope with crutches, educating them to prevent injuries etc.
Allied health industry is a cost-effective response to the aging population. With older people being high users of the health system, the aging population has led to some concerns about expenditure within the health system. Disease prevention is always better than cure, in monetary and health risk perspectives. Therefore, we believe HLA will have a long-term growth trajectory.
Acquisitive growth business
HLA is an acquisitive business. The company is expected to deploy a minimum of $20m of capital for acquisitions over the next 12 months. HLA has a good track record to make accretive acquisitions.
In February 2021, HLA acquired three physio clinics. Let’s use one of them as an example to show its acquisition strategy. HLA paid ~$2m to acquire The Physio Clinic with an EBITDA of $0.4m. This acquisition is at 5x EBITDA. This is accretive considering HLA is valued at 7x EBITDA.
The allied health industry is a fragmented industry. HLA is expected to continue this growth strategy and deliver value to shareholders.
Conclusion
HLA, at the current price (12x FY22 PE) is a cheap long-term investment. We believe the market will re-rate it once the company shows the growth opportunities from the allied health industry and HLA’s high-quality execution in acquisitions.
Till next week, happy investing.
Michael and Kenny
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