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Healthscope under the microscope

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By Michael McCarthy

When you hear “healthcare sector” what do you think of? Hospitals and aged care? The Australian healthcare sector is all that and a lot more. They were lumped together when investors sought “defensive” earnings. An aging population and government payment of many bills dominated individual company features. As this desire for defensive earnings recedes, the sector may be viewed in a more nuanced way.

It’s easy to underestimate diversity in the sector. There are hearing and anti-snoring device manufacturers, blood product makers, medical suppliers, pathologists and drug companies, as well as the traditional medical services groups. The recent half year earnings reports saw responses at the company level, and share price performance varied enormously.

One to catch the eye is Healthscope (HSO).

HSO traded to all-time lows into its August half-year result announcement. Then a miss on earnings, and forecasts some analysts thought were too optimistic, saw share price targets slashed. The stock fell a further 15%.

Note most analysts’ earnings estimates are below HSO management’s guidance. Even at these lower levels the price to consensus earnings ratio is around 17.5x – close to the broad market and well below the healthcare sector average.

This healthcare provider is not an income play. A key question revolves around the current hospital build – when will the site start earning, and how high will those earnings be? Given the conservative consensus view and the lower share price it’s time investors take a good look at this hospital care provider in development.

Published: Tuesday, October 10, 2017


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