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Primary Health shares defy $575m writedown

Shares in Primary Health Care absorbed a significant hit to the company's full-year guidance, eventually closing the day higher, after the company slashed the goodwill value of its medical centres.

After shedding almost 0.8 per cent in early trade, shares in the medical centre and pathology operator were climbing by lunchtime and closed three cents higher at $3.63.

Primary's announcement on Friday of a $575 million non-cash impairment around its core Medical Centres division, follows February's 36 per cent drop in earnings before interest and tax as the company struggles to transition its bulk billing business with a new approach to recruiting practitioners.

Citi analyst Victor Windeyer said the company expects full-year underlying profit to come in at the lower end of an already downgraded guidance, now in line with Citi's estimate of $92 million, compared to $96.8 million in 2016.

Mr Windeyer said that while Citi remains skeptical of the "one off" nature of at least a portion of the restructuring and transformation costs, Primary has been streamlining, cutting jobs across its corporate and divisional head offices and is expecting to generate savings of $6 million annually.

Acting chief executive Malcolm Ashcroft said he was confident the repositioning of the company's troubled Medical Centres division would deliver significant value creation to Primary,.

Citi noted that the performance of Primary's imaging business was "strong" and that pathology saw a "modest increase."

"The substantial reduction in the capital cost of healthcare practitioners and on-going capital expenditure discipline has enabled us to continue to reduce debt and to self-fund our requirements including investing in our growth plans across the business," Mr Ashcroft said.

While adverse interest rate movements and problematic acquisitions could impact Primary's outlook, the bigger risks may be regulatory, Mr Windeyer said.

"Primary's main risks relate to government regulatory and reimbursement changes that negatively impact pathology, diagnostic imaging and GP centres," Mr Windeyer said.

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