Morningstar

Morningstar, Inc.

Equity Bottom-Up

After rallying approximately 35% since the beginning of calendar 2019, shares in Healius are now modestly undervalued relative to our unchanged AUD 3.50 fair value estimate. Major shareholder Jangho's takeover bid in early January 2019 was opportunistic, and the subsequent rejection by the board reflected our opinion that the AUD 3.25 bid undervalued the firm. Healius' large-scale medical centres generate dependable earnings, and its pathology division in particular enjoys competitive…

Healius provides investors with exposure to a portfolio of medical businesses with reliable earning streams. We expect the latter to grow solidly over the medium and longer term as the firm fills excess capacity and benefits from rising demand from an aging population. Earnings should be relatively insulated from cuts to public healthcare budgets, as the effective delivery of diagnostic services helps to constrain healthcare costs by enabling early treatment of disease. The aging population and…

No-moat Healius reported underlying net profit after taxes of AUD 39 million for the first half of fiscal 2019, down 10% from the prior corresponding period. The weak performance reflected soft market conditions across all divisions, mostly driven by the benign winter flu season. However, we do not expect these conditions to continue and expect volumes to eventually revert toward the historical norm. The second half of fiscal 2019 should improve, as efficiency initiatives in pathology and…

Given shares in no-moat-rated Healius have been depressed over recent months, Jangho's proposal to acquire the healthcare company for AUD 3.25 per share is convenient timing. The bid falls short of our fair value estimate of AUD 3.50, and could be a shrewd bit of business for the Chinese company if they manage to pull it off. While the bid of AUD 3.25 represents a 46% premium to the stock price on Dec. 31, 2018, the last trading day before the proposal was announced, it is still more than 7%…

We reiterate our AUD 3.50 per share fair value estimate for Primary Health Care as we transition coverage to a new analyst. Our no-moat and medium fair value uncertainty ratings are unchanged. Shares in Primary Healthy Care currently trade at a meaningful discount to our fair value estimate.
Analyst: Daniel Ragonese

Australia

Healius Limited provides health care services. The Company offers diagnostic imaging, pathology, acute and chronic disease treatment, dental and eye care, and in vitro fertilisation services. Healius serves patients in Australia.

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