Healthscope: Favourable prognosis
About the author:
- Author name:
- By Dr Derek Jellinek
- Job title:
- Senior Analyst
- Date posted:
- 23 February 2017, 8:52 AM
- Sectors Covered:
- Healthcare
"Sound" and above expectation on an underlying basis
1H17 result was "sound" and slightly above expectations, with operating NPAT down
4.2% to A$96.1m (Morgans A$93.3m) on revenue of A$1,192m (+3.9%; Morgans
A$1,185m).
While net profit was impacted by higher D&A (+18.9%) and interest expense
(+36.5%), underlying EBITDA was up 5.1% to A$216.8m and margins expanded 20bp to
18.2%. OCF was solid (A$24.5m, +25.2%), with WC well controlled (cash conversion
103.5%) supporting the dividend (3.5cps; payout ratio 67%).
The balance sheet is strong
(ND/EBITDA 2.56x (ex-Northern Beaches Hospital) with ample capacity.
Core biz delivering rev/margin growth; ROW path/med centres soft
The core Hospital division held its own (EBITDA A$186.7m, +2.2%; margin -10bp to
18.5%), despite lower industry volume growth and increased case mix volatility, with two
expansion projects competed (added 2 theatres; 1 ED).
NZ pathology was the standout
(EBITDA A$30.5 m, +31.5%; EBITDA margin +290bp to 24.8%), while growth in Other
(ie Malaysia, Singapore pathology; Australia medical centres) was modest (EBIT
A$9.4m, +1.4%, margins +50bp to 16.1%), as strength in Mal/Sing was offset by medical
centre weakness (EBITDA -13.5%) on regulatory and higher costs.
Soft industry trends; but brownfields unaffected & pipeline robust
While management expects continued near term variability in the hospital segment,
flagging similar H/H earnings growth, we note it is not deteriorating and may prove
conservative.
Our confidence that growth will continue to come through is underpinned
by:
- increased focus on better cost alignment with volume/mix
- labour/procurement
savings
- little impact on completed brownfields, which are growing above market
rates
- a remaining robust brownfield pipeline that has yet to fully contribution to
earnings (792 beds and 49 theatres by end of FY19).
Remains a core holding
FY17-19 underlying earnings increase by 6.5%, but are offset by higher D&A and
interest. With underlying earnings ticking higher and shares trading at a discount to
RHC, we continue to view HSO as a core portfolio holding and maintain our Add rating.
More information
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