Australian Clinical Labs Limited (ACL) is a leading private provider of pathology services in Australia. It’s 75 laboratories perform over 12 million episodes each year for clinicians and patients. ACL’s FY23 group revenue fell 30% to $697 million driven by 84% lower coronavirus revenue and was in line with our forecast. Net profit after tax of $38 million, down 79%, was also in line with our expectations. The underlying second-half group EBIT margin contracted just 60 basis points on the first half to 9% despite a 71% drop in coronavirus revenue half on half. ACL provided fiscal 2024 EBIT guidance of $65-70 million, implying 0% to 7% growth. We maintain our AUD 3.50 fair value estimate with shares screening as undervalued.
We suspect the market is underestimating the speed and extent of doctor visits recovering, and subsequently, ACL’s pathology volumes. ACL’s base businesses remain well placed to service known under-diagnosis and backlogs for routine healthcare services. Base business pathology revenue, excluding coronavirus testing, was up a healthy 11%, in line with market growth. This reflects improving market conditions although remaining well below trend. ACL estimates non-coronavirus pathology episodes are 10%-15% below trend. We expect volumes to recover in key areas of market underperformance including private hospitals, clinical trials, and general practitioner referrals.