As the owner of a well-performed UK business and beneficiary of the strengthening pound, ICS is a stock to keep an eye on.
A popular investment theme at the moment is to look for companies that benefit from the weak Australian dollar, given that the Australian dollar has subsided over the last four years from US$1.11 (a 28-year high) to its current level at 72 US cents.
But the currency has lost the same proportion – one-third – against the British pound, in a shorter time, since March 2013. That suits ICS Global Limited (ICS) just fine: its only business operates in the UK, and it earns its revenue in pounds.
Listed in 1999, ICS has owned a number of operating companies in Australia, the US and the UK over its time as a listed company, but since 2010 its sole operating business has been Medical Billing and Collections (MBC) in the UK, which it acquired in November 2007. MBC provides tailored billing services to medical consultants and specialists: it advises them on their billing processes, collects debts on their behalf and negotiates with insurance companies. MBC takes responsibility for the debt, allowing the consultant-patient relationship to be kept at a strictly medical level.
MBC’s involvement sees the doctor paid quicker, reducing the practice’s bad debts and as a result, increasing revenue and net income, while the doctor is freed to concentrate wholly on the medical side of the practice, and the secretaries/practice managers freed to run the practice.
Weekly emails and texts inform the practice that invoicing has been done and money received. A secure website allows the practice manager to see the business’ finances real-time, monitor my business and produce figures for the practice’s accountant.
As the complexity of dealing with insurers increases in the UK market, an outsourced service like MBC is showing strong growth. Revenue increased by 22 per cent in FY15, to £2 million, and profit before tax rose by 18 per cent, to £580,000. MBC signed its biggest client so far – a medical clinic – in late 2014, and began billing this customer in March 2015, so it will show up fully in the FY16 accounts.
MBC’s solid year allowed ICS – with a currency tailwind – to report a 30 per cent rise in revenue in FY15, to $3.85 million, and a net profit of $1 million, up 61 per cent. Earnings per share (EPS) rose by 44 per cent, to 8.4 cents. An unfranked dividend of 4 cents a share was paid, up from 3 cents in FY14. (In December 2014, the company completed a one-for-20 consolidation of its share capital.)
ICS beat its own profit upgrade, which it released in early June, with a net profit guidance range of $875,000–$950,000. The first-half profit was $445,609, but that was effectively $345,609, as it included $100,000 from discontinued operations. So the second half – even with favourable currency movements – was about $560,000. With the large new MBC client only contributing from 1 March, ICS looks capable of further earnings growth in the current year.
MBC is an excellent business. It takes a task that medical professionals do not well – chasing payment – and not only takes the hassle away, but does it very efficiently, with the benefit of scale. Outsourcing this part of the business is a win-win. MBC is not the only company offering this service – the UK is a competitive market – but medical practices tend to be very grateful to have this worry both taken off their hands, and conducted far more productively than they can manage themselves. It is a business that usually results in satisfied – and thus “sticky” – customers.
From free cash flow throughout the year, ICS invested a further $301,777 in the MBC platform, to allow new products to be offered to clients and open up new market opportunities. The company says it expects to see considerable revenue growth in the future from increasing the portfolio of services that it offers to the market: it says this revenue growth has commenced in the accounts since the June 2015 quarter.
Shareholders would like to see another business added to the portfolio. In February this year, ICS announced a $250,113 investment (also from free cash flow) in Australian-based education technology company, OpenLearning, as part of OpenLearning’s successful round of fund-raising which secured $1.7 million to continue its expansion. This gives ICS a 3.2 per cent stake in OpenLearning.
In June 2015, OpenLearning won a significant contract from the federal government to deliver Australia’s first Federal Government Massive Open Online Course (MOOC), which will train thousands of public servants and members of the public over the next four years. The government will deliver cost-effective, high-quality training using OpenLearning’s platform, allowing the government to roll-out the training program on a large scale, while increasing transparency on government decision-making for the public, community organisations and stakeholders.
OpenLearning currently has more than 200,000 students from 27 universities around the world using its social and collaborative online learning platform. Its key customers include the University of New South Wales, the Australian Institute of Sport, the Ministry of Education in Malaysia and Taylor’s University (Malaysia) and various corporate clients.
The OpenLearning investment is a small one, and it is a long way from being another operating business. But at least the company is investing again, for the first time since it sold its Australian and US businesses in 2010.
At the moment, MBC is all there is – albeit it is growing impressively. That makes ICS an interesting stock, but a very small one. At $1.31, ICS is capitalised at just $14 million, with average daily trade on the “trickle” scale, at less than $1000. It would take some time and patience to build up a meaningful stake in ICS, but that’s certainly not to say it would be a waste of time and money. There are no forecasts available for ICS, but if it repeated its FY15 EPS of 8.4 cents and dividend of 4 cents in FY16, it would be trading on a price/earnings (P/E) ratio of 15.5 times earnings and an unfranked yield of 3.05 per cent. As the owner of a well-performed UK business and beneficiary of the strengthening pound, ICS is a stock to keep an eye on.
