Medical House Plc

Shares Magazine
19th October 2000

theedge

PLAYS OF THE WEEK

THE MEDICAL HOUSE (MLH) – (AIM) 50p

BUSINESS: healthcare

AIM newcomer The Medical House has ambitions to become a major player in the health sector and a recent deal with medical devices specialist Medisys throws light on how it plans to get there.

When it floated on AIM last month, investors valued the company on its two main lines of business. The information division stores, manages and distributes medical data in digital format, offering space and cost savings, timeliness and the capacity to conduct searches.

The products division contains Eurocut, Europe’s leading designer and maker of orthopaedic instruments. A profitable business for the past nine years, it provides the group with valuable cashflow. However, the real potential lies in medical devices.

Through its work in orthopaedics, the company has developed expertise in the design of hi-tech medical instruments. Chief Executive Ian Townsend wants to put this expertise to work in other areas.

The company floated to provide the ‘currency’ to clinch some interesting deals. The first came when the company bought the rights to a technology developed by Medisys, which it hopes to use in the development of the ‘Hyperlyser’, a device that detects the presence of bacteria that cause peptic ulcers, indigestion and heartburn.

The potential savings to health budgets are huge. All things going well, the product could be on the market in 12 to 15 months’ time, which could see pre-tax profits rise from £318,000 last year to £1.4 million for the tear to 30 June 2002.

Similar deals are likely to follow, Townsend wants to add a couple of products to the pipeline in order to spread risk. Through a series of modest, strategic acquisitions, he hopes to build a medical devices company worth several hundred million pounds.

The Medical House is a high-risk play, but with a market capitalisation of just £25 million, the potential upside borders on the irresistible. Speculative buy.

VITAL STATS:
Market capitalisation: £25 million
Historic PE to June 2000: 78.6
Prospective PE for 2001: 59.5
Prospective PE for 2002: 25.6
No dividend

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