Liberum initiates coverage on Medica at 'buy'

Analysts at Liberum initiated coverage on teleradiology firm Medica on Thursday at 'buy', pointing to faster earnings per share growth, higher earnings quality and underestimated optionality.

Liberum said Medica's new management team had made "the right investments" to take advantage of surging end-market demand and "incredibly tight supply", a move that the analysts believe will allow it to deliver a 20% organic EPS compound annual growth rate to 2025.

Furthermore, Liberum expects Medica to use its strong balance sheet for EPS accretive mergers and acquisitions that will diversify the business into new services and geographies.

Liberum also acknowledged Medica's addition of new chief executive and chief financial officers over the last two years, highlighting the team's "ambitious plans" to optimise growth in the firm's core markets through recent investments that were now bearing fruit.

"We believe that Medica is set to deliver some of the fastest EPS growth in the UK healthcare services sector whilst M&A provides significant optionality. Yet it trades at a c.45% discount to peers," said Liberum.

"We expect this valuation gap to close over the next 12-18 months with earnings delivery and further M&A. We, therefore, initiate with a BUY rating and a £2.00 TP, implying 71% upside. Medica is now our top pick in UK SMID."