In this briefing:
- Healthscope (HSO AU): Brookfield Makes Investors Wait, BGH Unlikely to Provide Material Upside
- Celgene and Bristol-Myers Squibb – Undervalued and Underappreciated
- Dr Lal Pathlabs: Pricing Pressure, Lower Earnings Growth Leave Room for Downside
1. Healthscope (HSO AU): Brookfield Makes Investors Wait, BGH Unlikely to Provide Material Upside
Healthscope Ltd (HSO AU), Australia’s second-largest private hospital operator, noted today that Brookfield Asset Management (BAM US) is seeking the necessary internal approvals to submit a binding proposal by 31 January. We believe that Brookfield will come through with its binding proposal as the delays are not due to issues cropping up from the due diligence but due to ongoing financing negotiations with multiple banks.
Notably, there is renewed optimism that BGH-AustralianSuper could materialise with a superior proposal. AustralianSuper has three options available, which lead us to conclude that the floor is Brookfield’s Scheme bid with an option of a minor bump from BGH-AustralianSuper.
2. Celgene and Bristol-Myers Squibb – Undervalued and Underappreciated
A dismal 2018 for the pharmaceutical and bio-tech stocks seems far in the rear view mirror. 2019 began with a bang with two blockbuster deals in the pharmaceutical space within days. In this note, we discuss Bristol Myers Squibb’s Co (BMY US) acquisition of Celgene Corp (CELG US) and outline our view that investors should go long BMY.
3. Dr Lal Pathlabs: Pricing Pressure, Lower Earnings Growth Leave Room for Downside
- Dr Lal Pathlabs (DLPL IN) is the largest pathology chain in India and caters to the Rs 600 bn market growing at 15% Cagr. It is strongest in the lucrative NCR and Kolkata markets.
- Management has the best capital allocation track record in the pathology chain space. Network expansion mirrored patient volume growth.
- Patient volume growth has been the strongest among peers.
- However, revenue/patient has been declining as competitive pressure forced them to do away with price hikes for 2 consecutive years (2017-18). Increasing bundling of tests without adequate price hikes leading to sharp decline in revenue/sample.
- Expansion into eastern India with second central reference lab will drive down realizations
- Revenue growth deceleration and Ebitda margin contraction over FY17-18 looks to have stabilized now but are unlikely to revive.
- We expect Revenue and PAT Cagr of 15% and 16% respectively over FY18-21 against 21% and 34% respectively delivered over FY13-16.
- At CMP of Rs 996, Dr Lal trades at 36.1x FY20 EPS. Dr Lal’s steep multiples could see some compression with the lower growth trajectory and once the faster-growing Metropolis lists in the market. Our target price (30x FY20F) is Rs 827 implying 17% downside.
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