Healthcare

Healius sinks on uninspiring trading update

Fri 03 Jun 22, 11:50am (AEST)
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Key Points

  • The company has added less than $100m of earnings in the second half, with one only month to go
  • Operational challenges and additional costs due to the level of covid infections have led to last-minute cancellations of surgery and imaging procedures
  • Goldman Sachs retains Neutral-rated and cites possibility of sharper declines in covid volumes than expected

Healuis (ASX: HLS) was down -6.01% at the open after the healthcare company informed the market this morning of more difficult market conditions in the second half of the financial year following strong first half trading.

Trading is broadly in line with the company’s update last month.

However, management noted that due to market volatility and a “range of broker forecasts” unaudited underlying earnings (EBIT) for the year-to-date to May 2022 is now expected to be around $473m.

Clearly what has irked investors this morning is revelations that the company has added less than $100m of earnings in the second half, with one only month to go.

This compares to earnings of $376.1m during the first half.

Core business

Both Q3 Pathology and Imaging are slightly ahead (as in the first half) of Medicare data.

Covid testing remained around 15,000 per working day in May.

But the company notes operational challenges and additional costs due to the level of covid infections have led to last-minute cancellations of surgery and imaging procedures.

Market data for the 4 months to 30 April 2022 include:

  • Core pathology benefits -8.8% on the previous period, compared to -1.4% in 1H 2022

  • Imaging benefits -8.2% on the previous period, compared to +0.6% in 1H 2022

Other recent developments

Mid-March Healius announced an on-market share buy-back of up to $100m over the next 12 months, and this week announced the completion of the sale of Adora Fertility.

Healius has also refinanced its debt facilities and reconfirmed its margin expansion targets from its Sustainable Improvement Program.

Looking ahead, management also advised that it remains focused on growing its core pathology and imaging businesses, where it believes it is well-positioned as an incumbent operator with operating leverage.

Management also aims to grow its emerging diagnostic positions, underpinned by its market-leading digital program.

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Healius share price over 12 months.

What brokers think

The Healius share price is down -3.70% over the last 12 months, and since late December has bounced from $5.45 to a low of $3.96.

Consensus on Healius is Moderate buy.

Based on Morningstar’s fair value of $4.90, the stock appears to be undervalued.

Goldman Sachs retains a Neutral-rated on Healius (target price $4.60) and cites the possibility of sharper declines in covid volumes than expected, execution risks, and market share losses from heightened competitor activity.

Based on the six brokers that cover Healius (as reported on by FN Arena) the stock is trading with 17.6% upside to the target price of $4.81.

Citi attributes the company’s significant underperformance, relative to the ASX, to the anticipated -65% decline in FY23 earnings as covid testing declines materially moving forward.

The broker’s Neutral rating and target price of $4.70 are retained.

Despite being below pre-covid levels, Macquarie expects base business improvement heading into FY23, and retains an Outperform rating and target price of $5.20.

Written By

Mark Story

Editor

Mark is an investigative financial journalist and editor who started his career working for Marathon Oil in London. He has a degree in politics/economics and a diploma in journalism. Mark has worked on 70-plus newspapers and financial publications across Australia, NZ, the US, and Asia including: The Australian Financial Review, Money Magazine, Australian Property Investor and Finance Asia. Mark is passionate about improving the financial literacy of all Australians through the highest quality content. Email Mark at [email protected].

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