The ASX 200 stocks hit with the biggest broker downgrades last week
Healius' consensus target price was cut by 20.4% after its emergency capital raise last week.
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Mentioned
KEY POINTS
- Healius's share price plummeted by 30% after it raised $154 million through a capital raising at a steep discount
- Healius faces challenges such as declining COVID-19 testing volumes, rising debt levels, and a saturated pathology market
- Broker Citi downgraded Healius to a Neutral rating and lowered its target price to $1.25 due to share dilution and lower earnings guidance
Healius (ASX: HLS) shares fell as much as 30% last Wednesday after raising $154 million at $1.20 per new share – A steep 34.6% discount to pre-raise prices and represented approximately 27% of Healius' existing shares on issue.
The share price drop is the stock's largest on record. It's now trading at levels not seen since February 1999 and analysts aren't calling for investors to 'buy the dip' either.
The capital raise was used to "deliver a reset of the balance sheet" and reduce its total bank facilities from $1 billion to $750 million and reduce its drawn debt by at least $150 million by mid next year.
Healius, one of the largest pathology and radiology providers in the country, has struggled for many reasons, including:
The decline in Covid-19 testing volumes. Healius benefited from the surge in Covid testing during the pandemic. But these revenues are fairly non-existent nowadays.
High debt levels. Healius had $446.8 million in debt as at 30 June 2023 and incurred $62.3 million in interest costs in FY23, up 27.1% year-on-year.
Declining pathology volumes. "There used to be 6000 pathology collection centres in Australia. There are now 6600 centres in a market where volumes are actually lower over the past four years,” said Healius Chief Executive Maxine Jaquet, the AFR reports.
Rising costs: The business has been susceptible to a rising cost base including higher rents (up 4-5% in the past year) and wages (up 3-4% in the past year).
The Biggest Broker Downgrades
The below data ranks ASX 200 companies based on the largest week-on-week decrease in consensus share price targets.
Ticker | Company Name | Close Price | 1-Week | Target Price | Prev Target Price | % Dif |
|---|---|---|---|---|---|---|
Healius | $1.30 | -23.5% | $2.15 | $2.70 | -20.4% | |
Alumina | $0.71 | -0.7% | $1.00 | $1.04 | -3.8% | |
TPG Telecom | $4.66 | -1.9% | $5.45 | $5.66 | -3.7% | |
Life360 | $7.56 | -7.2% | $11.58 | $12.00 | -3.5% | |
Allkem | $8.46 | -2.7% | $13.76 | $14.14 | -2.7% | |
EVT | $10.82 | -1.5% | $14.10 | $14.47 | -2.6% | |
South32 | $3.14 | -1.0% | $3.95 | $4.05 | -2.5% | |
Liontown Resources | $1.40 | -5.4% | $2.04 | $2.09 | -2.4% | |
CSL | $258.09 | -0.2% | $316.01 | $323.40 | -2.3% | |
New Hope Corp | $5.39 | 3.9% | $4.80 | $4.91 | -2.2% | |
Karoon Energy | $2.13 | 3.9% | $2.73 | $2.79 | -2.2% | |
Orora | $2.50 | -1.6% | $3.21 | $3.28 | -2.1% | |
Origin Energy | $8.56 | -0.5% | $9.07 | $9.26 | -2.1% |
'Target price' is an aggregate of Refinitiv broker target prices. % Dif compares target prices between 17 and 24 November 2023.
Healius: Sold and downgraded to oblivion
"The capital raising brings gearing back to 2.3x at FY24e, but a great cost to shareholders," Citi analysts said in a note dated November 22.
"We don’t think the capital raise will fundamentally change the economics of a potential HLS-ACL merger, but it puts HLS in a stronger financial position," they said, adding that "the FY24 EBIT guidance of $95-105m was ~32% below VA consensus."
Citi remains more cautious on FY24, with expectations of $90m in EBIT.
The analysts cut their target price from $1.99 to $1.25 to reflect share dilution and some tweaks in earnings assumptions. A Neutral rating was maintained.
