About the author:

Dr Derek Jellinek
Author name:
By Dr Derek Jellinek
Job title:
Senior Analyst
Date posted:
26 August 2016, 11:44 AM
Sectors Covered:

Key points

  • FY16 underlying result was solid and broadly in-line, underpinned by strong performances in the core Hospital and New Zealand Pathology divisions.
  • Encouragingly, operating efficiencies via case mix, layout and procurement initiatives continue to deliver hospital margin uplift, while capacity expansion programs remain on track and on budget.
  • While wary of cost pressures and ongoing government reviews, we continue to view underlying growth drivers as intact, with a strong focus on quality and clinical outcomes and brownfield pipeline supporting continued momentum. 

FY16 results broadly in-line

FY16 results were solid and broadly in-line, with adjusted NPAT (ex A$11.8m in non-recurring items) increasing 25% to A$194.6m on revenue of A$2,291m (+6.2%). Underlying EBITDA grew 7.1% to A$407.9m and margins expanded 10bp to 17.8%. While operating cash flow of A$391.7m (+3.7%) growth was impacted by higher accrued revenue in coding and billing, it is only temporary, cash conversion was still strong (c96%), supporting 5% dividend growth (payout ratio 70%).

Core business delivering

The result was underpinned by strength across the core Hospital division (EBITDA A$354.9m, +8.3%; margin +50bp to 18.2%), with seven expansion projects completed (three in 2H; 163 beds, 9 theatres), and New Zealand Pathology (EBITDA A$50.7m, +21.8%; EBIT margin +90bp to 18%), offsetting softness in other divisions (pathology in Malaysia and Singapore and Australian medical centres) on market softness and higher costs. The balance sheet is strong with ample capacity to support future growth.

The best is yet to come

We believe FY16 results demonstrate strong execution as they were driven mainly via organic growth and ongoing cost savings. While FY17 outlook was merely qualitative, we concur with management that it remains "well-positioned to meet future demand" as on-time/budget brownfields (ten projects underway, 762 beds, 43 theatres end of FY19) "continue to lay the foundation for strong growth over the medium term" in catchments with strong fundamentals (i.e. a growing and ageing population) despite industry growth moderating "slightly" and ongoing political/regulatory "noise".

Investment view

With an earnings trajectory ticking higher and shares trading at a discount to Ramsay Health Care and global peers, we continue to view Healthscope (HSO) as a core portfolio holding. We maintain our Add recommendation.

More information

Morgans clients can login to view our upgraded share price target and further detailed analysis on Healthscope (HSO). Alternatively, contact your nearest Morgans office for more information.

Disclaimer: The information contained in this report is provided to you by Morgans Financial Limited as general advice only, and is made without consideration of an individual's relevant personal circumstances. Morgans Financial Limited ABN 49 010 669 726, its related bodies corporate, directors and officers, employees, authorised representatives and agents ("Morgans") do not accept any liability for any loss or damage arising from or in connection with any action taken or not taken on the basis of information contained in this report, or for any errors or omissions contained within. It is recommended that any persons who wish to act upon this report consult with their Morgans investment adviser before doing so.

  • Print this page
  • Copy Link