Healius Limited

Company Overview: Healius Limited (ASX: HLS) provides health technology, including diagnostic imaging services and pathology services. The company has four reportable segments, namely (1) Pathology, (2) Imaging and (3) Day Hospitals (4) Corporate. It also enables a wide range of private healthcare professionals to provide patient care in collaboration with Healius’ nurses and assistance staff. The company was listed on ASX in 1998.

HLS Details

HLS Rides on Geographical Expansion & Robust Segmental Performance: HLS played a key role in Australia’s public health response to the Delta and Omicron outbursts, with PCR testing being the main growth driver. The company also successfully delivered non-COVID services in all divisions against the environment of state-centred lockdowns. Going forward, it expects long-term market growth backed by improvements in healthcare technology and cancer endurance rates and increasing patient expectations.

Focus on 1HFY22 Key Numbers:

• Top & Bottom-Line Performance: For the year ended 31 December 2021, the company reported underlying revenue of $1,339 million, up from $936.4 million reported in the year-ago period. Underlying EBIT for the period stood at $376.1 million, up from $136 million reported in the year-ago period. In 1HFY22, underlying NPAT came in at $245.6 million as compared to $75.3 million reported in 1HFY21. Results were positively impacted by robust Pathology’s key role in COVID-19 testing, along with well-maintained Labour, property, and IT costs.

Segmental Performance; Analysis by Kalkine Group

Enhancing Shareholder’s Value & Liquidity Position In 1HFY22, the management declared an interim dividend of 10 cents per share, up from 6.5 cents per share in 1HFY21 and 6.75 cents per share in 2H 2021. It also completed its on-market buy-back and the FY21 final dividend payment totalling $140.8 million. At the end of the period, the company's net debt came in at $221.1 million. The bank gearing ratio stood at 0.4x as at 31 December 2021, compared to 0.7x as at 31 June 2021. Overall, the company has shown decent leverage improvement in capital raising, free cash flow generation, and the capital recycling program. Gross operating cash inflow in 1HFY22 came in at $408.3 million as compared to $285 million in 1HFY21.

Key Strategies; Analysis by Kalkine Group

Key Metrics: EBITDA margin for FY21 stood at 27.1%, which is higher than the year-ago figure of 21.3%. The net margin for the year stood at 3.5%, better than the industry median figure of 2.9%. The period's cash cycle days stood at 84.1 days, down from the FY20 figure of 96.9 days.

Profitability & Liquidity Profile; Analysis by Kalkine Group 

Top 10 Shareholders: The top 10 shareholders together form around 22.81% of the total shareholdings, while the top 4 constitutes the maximum holding. Vinva Investment Management Limited and Dimensional Fund Advisors, L.P. are holding a maximum stake in the company at 4.93% and 4.89%, respectively, as also highlighted in the chart below: 

Top 10 Shareholders; Analysis by Kalkine Group 

Risk Analysis:  The rise in net debt was enormously attributed to high capital expenditure and a substantial increase in working capital management. HLS shall hold tight on working capital, considering potential threats from the new variant of COVID-19. Considering global operations, HLS is subject to volatilities in foreign currency markets.

Outlook: The company expects to increase its revenues from the ongoing baseload level of COVID-19 testing for clinical issues. Moreover, HLS anticipates robust operating conditions in Pathology to be the most vital factor in the upbeat delivery of the prediction. HLS successfully delivered its SIP program, which includes optimising its physical footprint, releasing a pathology e-commerce portal and consumer products, and its Lumus Imaging brand. It expects to invest higher by deleveraging its balance sheet from the sale of Healius Primary Care and higher revenues obtained from COVID-19 testing. The company’s balance sheet remains decent and positions it well to fund value-generating investments, reward shareholders, meet the ongoing capital needs and maintain a liquidity buffer.

Valuation Methodology: P/E Multiple Based Relative Valuation (Illustrative) 

Source: Analysis by Kalkine Group 

*% Premium/(Discount) is based on our assessment of the company’s NTM trading multiple after considering its key growth drivers, economic moat, stock's historical trading multiples versus peer average/median, and investment risks.

Stock Recommendation: The stock of the company has been corrected by ~13.45% in the past six months. Currently, the stock is trading below the average of its 52-weeks’ high and low levels of $5.54 and $3.79, respectively. The stock of the company has been valued using the P/E multiple-based illustrative relative valuation method and arrived at a target price of low double-digit upside (in % terms). The company might trade at some discount compared to its peers, considering risks related to COVID-19, foreign currency risk, rising net debt, etc. For the purpose of valuation, peers such as Paragon Care Ltd (ASX: PGC), Australian Clinical Labs Ltd (ASX: ACL), and others have been considered. Taking into account the aforesaid fact, HLS’ diversified portfolio, geographical expansion, enhancing shareholder’s value, decent fundamentals and long-term outlook, current trading levels, and indicative upside in valuation, we recommend a “Buy” rating on the stock at the current market price of $4.29 as on 23 February 2022, 10:30 AM (GMT+10), Sydney, Eastern Australia.

HLS Daily Technical Chart, Data Source: REFINITIV 

Technical Indicators Defined:-

Support: A level where-in the stock prices tend to find support if they are falling, and downtrend may take a pause backed by demand or buying interest.

Resistance: A level where-in the stock prices tend to find resistance when they are rising, and uptrend may take a pause due to profit booking or selling interest.

Stop-loss: It is a level to protect further losses in case of unfavourable movement in the stock prices.

Note 1: The reference data in this report has been partly sourced from REFINITIV.  

Note 2: Investment decision should be made depending on the investors’ appetite on upside potential, risks, holding duration, and any previous holdings. Investors can consider exiting from the stock if the Target Price mentioned as per the Valuation has been achieved and subject to the factors discussed above.

Disclaimer

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