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Medical Australia undervalued according to research house

With a price target 84% higher than the last traded price, a research house has placed the bullish recommendation on Medical Australia as Government healthcare spending increases and the company's OEM deals drive growth.
Medical Australia undervalued according to research house

Medical Australia (ASX: MLA) has received a $0.059 price target, 84% higher than the last traded price of $0.032 from a research house.

The following is an extract from the report.


Healthcare Spend, OEM Deals to Drive Growth

Medical Australia is a Sydney, Australia-based company involved in the development, manufacturing and distribution of medical devices and consumables used in the human and animal healthcare markets of Australia, New Zealand and Asia.

The company is focused on three core areas, namely medication delivery, reuse prevention and surgical devices.

The Australian medical device industry is expected to benefit from increased healthcare spending by the Australian government which is expected to reach A$96.0 billion in 2017-18 from A$71.2 billion in 2007-08 on the back of an aging population and increased incidence rates of lifestyle diseases.

Apart from this, the most promising immediate revenue trigger for MLA is its multi-million dollar deal with MediVet, a Sydney-based animal health company, which is estimated to generate annualized revenues of ~A$3 million starting from 2HFY11 by tapping into the lucrative US pet healthcare market which is expected to reach US$12.2 billion in 2011.

Moreover, the company has also signed Original Equipment Manufacturer (OEM) deals with healthcare companies Terumo Medical of Japan and Germany’s Fresenius Kabi which will strengthen MLA’s revenue streams.

MLA’s licensing and distribution deal with Analytica Limited will help the company further expand its product portfolio.

Further, MLA is also expanding operations in the lucrative Middle East region.

It has already appointed distributors in Kuwait, Iran, Qatar, Bahrain, Oman, Lebanon and Jordan and has started shipping its products.

The company also provided training to these distributors recently in Dubai and has plans to enter more countries in the region as well.

MLA undertook significant restructuring initiatives during FY10 that included rationalizing its supplier base and consolidated manufacturing facilities in China.

These initiatives enabled the company to record its maiden net profit of A$134,753 during 1HFY11.

With significant deal traction and restructuring efforts, we believe MLA is poised to effectively capitalize on the upcoming growth wave in the Australian healthcare industry.

We have valued MLA on a Discounted Cash Flow (DCF) basis and initiate coverage with a target price of A$0.059/share, an upside of 84.6% from the last traded price of A$0.032/share.


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