Healthscope
About the author:
- Author name:
- By Dr Derek Jellinek
- Job title:
- Senior Analyst
- Date posted:
- 29 June 2015, 9:15 AM
- Sectors Covered:
- Healthcare
Healthscope (HSO) has sold its domestic pathology operations (550 collection centres and 31 laboratories in NSW, VIC, SA and NT) as well as six medical centre skin clinics on the East Coast to Crescent Capital Partners for A$105m.
Collectively, these businesses contributed marginally to 1HFT15 EBITDA (A$2.4m), but were net loss making (EBIT -A$3.5m). The transaction is slated to close by the end of next month, with proceeds used to fund an expanding hospital brownfield pipeline.
Focus on the core
The announcement shouldn't come as a major surprise as speculation of a play for the domestic pathology business has been well flagged over the past month. We believe the pathology business is sub-scale (estimate 12% share) in a sector where scale is king, as well as non-core and has had its fair share of challenges (ongoing regulatory changes, fee cuts, asset sales and closure of unprofitable businesses).
As such, the jettison of the business (along with some marginally profitable skin clinics) at an attractive price looks like a compelling strategic move. This move allows management to focus on driving its core hospital portfolio, while providing fodder for a re-rate closer to pure-play hospital peer Ramsay Health Care.
A defensive double digit earnings stream
We continue to view Healthscope as a core holding, offering a developing portfolio of high-return, low-risk assets underpinned by attractive industry dynamics and a reputation for quality and service. We increase our FY16-17 earnings estimates by up to 2.1%. Our share price target increases to A$3.29 (previously A$3.22) and we retain our Add recommendation.
More information
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