Shares of private hospital operator Healthscope Ltd (ASX: HSO) have bounced after the company announced the sale of its Australian Pathology operations to Crescent Capital Partners for $105 million. The shares traded 2.6% higher at $2.72 after closing at $2.65 on Monday.
As part of the transaction, Healthscope will receive $92.5 million in cash proceeds and a promissory note of $12.5 million, while Crescent Capital Partners will gain control of 550 collection centres and 31 pathology laboratories spread across Victoria, South Australia, New South Wales and the Northern Territory. Healthscope will also transfer six skin clinics from its Medical Centre operations as part of the deal.
Indeed, the division has acted as a drag on the group's overall earnings in recent times and was considered to be non-core to the company's future growth plans. In the most recent half, Healthscope elected to close the loss-making Queensland pathology business (largely due to its weak position against Sonic Healthcare Limited (ASX: SHL) and Primary Health Care Limited (ASX: PRY) within that market) while the remainder of the division also struggled to gain traction.
In fact, for the period, the Australian Pathology division generated revenue growth of just 2.7% compared to the prior corresponding period. Meanwhile, earnings before interest, tax, depreciation and amortisation (EBITDA) declined by 23.4% and its EBITDA margin fell 180 basis points to 5.2%.
Healthscope's CEO Robert Cooke said: "The sale will allow Healthscope to focus management time and resources on growing our core hospitals business where we have a strong pipeline of growth opportunities."
Cooke also confirmed that the company remains committed to its International Pathology operations which have consistently delivered stronger results than the local operations. In the latest half, EBITDA from the international arm rose 17.1% on the back of an 8.9% increase in revenue while its EBITDA margin rose 170 basis points to 24.3%.
Should you buy Healthscope?
Healthscope is in a good position to benefit from Australia's trend towards greater private health cover, while it will also benefit from the nation's aging population as well as overall population growth.
However, at their current price of $2.72, the shares trade on a rather lofty 28x forecast earnings for the 2015 financial year, suggesting that the market has already priced in significant future earnings growth. While it could still be a reasonable investment for investors willing to remain patient over the long term, there are a number of other stocks that I believe are currently presenting as superior value.
