Listed in 2017, Clearbridge Health Ltd (SGX: 1H3) is a small-cap healthcare company that operates medical clinics and diagnostic laboratories. It also has investments in medical technology companies, including a 35.47% interest in recently listed cancer diagnostic company Biolidics Ltd (SGX: 8YY).
In FY2018, the Clearbridge recorded 20-fold year-on-year revenue growth. Given such tremendous growth, I decided to dig a little bit deeper into how the company achieved this and whether it can make a good investment. Here are three things I learnt about the fast-growing small-cap company.
Clearbridge’s full-year revenue grew to S$6.1 million in 2018, up from just S$288,000 in 2017.
The increase in revenue was underpinned by the group’s medical clinics and centres, which were acquired after its IPO in December 2017. These clinics generated S$2.93 million. The provision of laboratory testing services and renal care services contributed S$3.2 million in revenue in 2018.
However, Clearbridge recorded an S$18.89 million loss in FY2018, a substantial increase from the S$7.93 million loss in FY2017. Excluding non-recurring expenses such as professional fees incurred due to acquisitions, operating losses were still S$8.89 million — a hefty amount when compared to the company’s revenue.
Source: SGX 10 in 10 series with Clearbridge Health Ltd
Balance sheet and investments
Clearbridge Health Ltd has S$14.6 million in cash and S$13.9 million. This gives it a net cash position of S$0.7 million. It has a book value of S$47.9 million.
It is worth pointing out that Clearbridge’s investment in Biolidics has a carrying book value of S$16.2 million. However, based on Biolidics’ most recent share price, Clearbridge’s stake in the company is worth closer to S$24.5 million.
Taking this into account, Clearbridge has a net asset value of around of S$56.2 million. In May, it also entered into an agreement to acquire a 51% stake in nine dental clinics in Singapore for S$3.3 million.
The clinics are profitable and are expected to have a positive impact on Clearbridge’s financial performance this year.
Clearbridge’s investment strategy
Much of Clearbridge’s growth has come from mergers and acquisitions. The group plans to continue to acquire profitable and cash-generating healthcare businesses within Southeast Asia.
Clearbridge typically takes a controlling stake in the target company, leaving the remaining stake to an established local partner to ensure interests with its partner are aligned. Its acquisition targets are also EBITDA-positive (earnings before interest, tax, depreciation, and amortisation) to create a sustainable platform for growth.
A Fool’s view
Clearbridge’s vastly improved revenue was largely due to acquisitions made in 2018. The healthcare group has continued aggressively making acquisitions in companies that fit its corporate focus.
Its balance sheet is also fairly strong with a positive cash position. Interested investors should also note that its shares, after a steep decline, now sport a more reasonable valuation of just 1.7 times its book value. If we take into account Biolidics’ current share price, the price-to-net asset value per share falls to 1.5.
Nevertheless, investors should be mindful that Clearbridge is still a young and unproven company that, despite its top-line growth, is still making hefty losses. Moreover it has negative cash flow from operations. If the company continues to use its cash at this rate, a stable balance sheet can quickly turn sour.
The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Singapore contributor Jeremy Chia does not own shares in any of the companies mentioned.