• Goldman has Buy recommendations for health imaging stocks Capitol Health and Integral Diagnostics
  • Capitol Health’s earnings multiple is cheap, says Goldman
  • Integral is currently Goldman’s cheapest stock across its coverage


Goldman Sachs has Buy recommendations on two diagnostics imaging specialists Capitol Health (ASX:CAJ) and Integral Diagnostics (ASX:IDX).

For Capitol Health, Goldman has a 12-month target price of 33c (vs current market price of 28c), while for Integral, the target price is $3.70 (vs current price of $3.45).

Goldman believes both companies are well positioned in a structurally attractive market where there is a rapidly increasing ageing population, prevalence of chronic disease, and growth in healthcare expenditure.

The recent 2023-24 Federal Budget is also set to give the sector a boost, with $5.7bn in funding earmarked over five years to strengthen Medicare and improve accessibility to doctors in regional areas.

The broker says the fragmented nature of the radiology industry (top six players account for only 57% of revenues) provides opportunities for consolidation, given the scale benefits and potential revenue and cost synergies.

Another tailwind for the sector is that there is an increasing use of of MRI, CT and PET imaging services in Australia. Latest OECD data shows that the proportion of MRI and CT scans as a percentage of total volumes has increased from 37% in 2010, to 45% today.

According to GS, there is more space for growth as Australia’s MRI utilisation is still below other developed countries.

“We believe that Australia’s MRI usage should over time move towards France’s, which is currently more than 2x that of Australia, given that both countries have a similar level of equipment per capita.”


What exactly is diagnostic imaging?

Diagnostic imaging refers to the field of medicine that utilises non-invasive techniques to produce images of the human body for clinical analysis and medical intervention.

These images are produced using a range of modalities, including:

– Magnetic Resonance Imaging (MRI)
– Computed Tomography (CT)
– X-ray (Diagnostic)
– Nuclear Medicine (including positron emission tomography (PET))
– Ultrasound

They aid doctors in diagnosing and deciding on the appropriate treatment for patients. In addition, doctors can use diagnostic imaging to monitor how the patient’s body is responding to a treatment.

The size of the Australian addressable market has experienced steady, consistent growth over the last 10 years.

Per Medicare data, total annual expenditure on radiology has increased from $3bn in FY12, to $4.9b in FY22, representing a CAGR of 5.2%.

This is consistent with the growth in annual healthcare expenditure in Australia in the last decade (CAGR of 5.5%).

“In our view, diagnostic imaging volumes have a number of structural long-term drivers such as increasing ageing population, increasing incidence of chronic disease that underpin long-term demand for services,” said GS.


Investment thesis for CAJ and IDX

CAJ is metropolitan focused, and operates 67 sites across Australia, with majority of these primarily concentrated towards Victoria, accounting for three quarters of its total number of sites.

CAJ is the sixth largest player in the country, and is a low cost community-based provider of radiology, which underpins its stable and defensive cash flows that are 77% government backed.

Goldman believes revenues that are majority government backed are resilient, which can provide the backbone for future investments and growth.

“CAJ also has a healthy balance sheet provides flexibility, and we believe its 7x NTM EBITDA multiple is attractive on a growth-adjusted basis,” said Goldman.

IDX on the other hand, is more regionally focused, and operates 89 sites with majority of sites located between QLD (46%), VIC (25%) and NZ (22%).

IDX also derives around 15% of revenue from teleradiology, which provides services to both internal and external clients.

Recent initiatives, such as the MRI deregulation for Australian regional and remote areas in 2022, have increased the accessibility of these services to a broader population.

“IDX is currently the cheapest stock across our coverage on a growth-adjusted,” said Goldman.


Share prices today:



The views, information, or opinions expressed in the interview in this article are solely those of the interviewee and do not represent the views of Stockhead.

Stockhead has not provided, endorsed or otherwise assumed responsibility for any financial product advice contained in this article.