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The First Connection

Weekly Reports | Dec 10 2020

This story features 1ST GROUP LIMITED, and other companies. For more info SHARE ANALYSIS: 1ST

Future prospects of the health booking platform – 1st Group – with some new opportunities on the horizon

By Tim Boreham

How a founder’s ASX-listed healthcare platform saved his own life

Health platform founder Klaus Bartosch offers an unusually personal and powerful endorsement of his own company: it literally saved his life.

Eight years ago Bartosch created 1st Group ((1ST)) to facilitate online medical appointments, given most of them were (and still are) made over the phone.

A keen cyclist, Bartosch in 2013 was about to embark on a series of cancer fundraising rides, but his knee arthritis was playing up.

Bartosch’s wife urged the then 51-year-old to book a doctor’s appointment on his own app for the next morning.

A blood test revealed a rare form of leukemia and less than 24 hours later Bartosch was in the emergency ward receiving chemotherapy in isolation.

“I had no white blood cells and no platelets, which meant a brain hemorrhage or common cold had the capacity to take my life,” he says.

“My oncologist said had I hopped on my bike the coming weekend, I wouldn’t have made the first day. If I had so much as scratched myself I would have bled to death.”

The now hale-and-hearty Bartosch’s message is that procrastinating on medical appointments can be fatal  – and anything that facilitates these bookings can save lives.

Of the 50 million medical appointments booked each month across the nation, around 95% are still over the phone.

“We do so much online stuff as consumers, yet with healthcare the way we engage with services has not fundamentally changed in a century,” he says.

Blokes are notorious for putting off a visit to the doc: of the 13 million bookings executed via 1st Group’s site since the company’s inception, women account for 70%.

“If it wasn’t for the platform I would have had to wait for next morning,” Bartosch says of his near-death experience. “The chances are I would have forgotten.”

Four years ago 1st Group predominantly was a booking and reminders platform, but since then it has expanded into nine products. These include pre and post consultation surveys, mobile and physical check-in kiosks and an online referral platform for GPs and patients to book specialists and upload records.

1st Group already dominates the pharmacy and independent optometry sectors, as well as the vet industry via its Pet Yeti platform

The company is also tackling the dentistry and psychology sectors.

“The current addressable market for our company is $1.2bn, so we have a long and continued growth pathway ahead of us,” Bartosch says.

1st Group’s growth prospects are also tied to the rise and rise of buy-now-pay-later (BNPL) schemes, which are already common in the medical sector but not yet entrenched.

In July the company struck a deal with Openpay Group ((OPY)) and then in October followed up with a contract with BNPL big daddy Afterpay ((APT)).

“Subject to the first six-month trial being successful, Afterpay will promote the platform to the 2600 relevant healthcare providers on its network.

“These platforms have demonstrated they can increase the spend of a patient,” Bartosch says. “For example at an optometrist they will take better lenses and frames, or if you are a dentist the patient might commit to an ongoing care program.

“With our platform, we are facilitating patients’ awareness of the fact these BNPL options are available by doing it through the booking process.”

In a “difficult and frustrating” 2019-2020, 1st Group grew revenue by 25% to $4.95m, but with the loss increasing to $5m from $4.3m previously.

The frustration stems from both covid and non-virus related delays to roll-outs with three key new clients: St Vincent’s Health Australia’s private hospital network, Medibank Private ((MPL)) (dental clinics) and Benestar which offers employee assistance (psychology) services.

1st Group then recorded revenue (receipts) of $1.25m in the September (first) quarter, with operating cash outflows of -$878,000.

Bartosch says while these new customer contracts should be more advanced, the delayed revenues will become apparent in the current (second) quarter, with revenue expected to be at least 10% higher than the June quarter.

The company cites a “portfolio lifetime value” of $108m as at the end of September, up $18.7m on the quarter.

Despite the BNPL deals, the value of 1st Group shares has halved over the last year, with investors ascribing an $18m valuation.

Bartosch says some investors would like to see the company growing at more than 25%, but argues they are looking at the wrong metrics.

The obvious issue is the company’s tight funding position: end of quarter cash of $1.16m with an undrawn credit facility of $450,000.

Cornerstone shareholder John Plummer has also agreed to extend a convertible note from $2m to $3m “if required”, with the timing of any conversion to shares determined by the company.

1st Group is also not the only health bookings platform, as it competes with the private HealthEngine Network and Hotdocs.

Backed by Seven West Media ((SWM)), HealthEngine Network lists more than 70,000 health practices used by more than one million consumers a month.

Following an Australian Competition and Consumer Commission probe, the Federal Court in August ordered the company to pay -$2.9m in penalties for misleading conduct.

The transgressions, admitted to by the company, related to sharing non-clinical patient details with health insurance brokers and publishing misleading patient reviews of medical practices.

The dubious activities took place between mid-2014 and mid-2018.

Medadvisor ((MDR))

In the ASX-listed listed sphere, 1st Group has passing similarities with the $130m market cap Medadvisor, which offers medication adherence reminders to 1.6m users.

“If anything Medadvisor could be a business partner and we have certainly had discussions with them over the years,” Bartosch says.

Medadvisor claims to have signed up 60% of pharmacies and “thousands” of general practitioners (GPs). It also provides a booking service to the latter. But the company’s broader prospects lie in the US, where it has just bought a like-minded mob called Adheris Health for a meaty $40m.

The purchase was funded by a $35m placement and institutional rights offer, with a further $3.5m gleaned from retail punters in the rights issue.

Medadvisor turned over $11m in the 2019-20 year, up 16% but also chalked up a -$9.8m loss.

Given the Medadvisor expects Adheris to turn over $US26m ($36m) in calendar 2020, the US foray also promises to be a life-changing event –  if not quite as literally as Bartosch’s close shave.

Meanwhile, Alcidion Group ((ALC)) is also another consumer-focused healthcare I.T. company, focusing on cloud-based information tracking in hospitals.

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