Medical centre, pathology, and imaging provider Primary Health Care Limited (ASX: PRY) released its half-year results to the market this morning.

Shares were up 22% on the news as of the time of writing, indicating shareholders could have been expecting a lot worse. Here’s what you need to know:

  • Revenue grew 4.6% to $835m
  • Profit After Tax grew 28.5% to $68.5m
  • Interim dividend of 5.6 cents per share (9 cents per share previously)
  • Underlying Net Profit After Tax (NPAT) fell 9%
  • Gearing of 30.7%
  • Cash of $64m, interest bearing liabilities of $1,162m
  • Positive cash flow of $14m for the half

So What?

Primary’s results were bumped up thanks to the sale of its shares in Vision Eye Institute as well as a favourable settlement with the ATO, which incidentally reduced the company’s ability to frank its dividends.

Once one-off items are excluded, shareholders can see that Primary’s underlying profits declined due to indexation on Medicare rebates and fee cuts to certain services. Additionally, management stated that medical centre margins were pressured due to increased marketing spend as well as labour costs.

Imaging revenues fell due to fee cuts, although average volumes grew across all of Primary’s major business segments. Management reported that Primary achieved ‘above market growth’ in several segments, which suggests it is growing market share, but declined to state the comparable market growth figures.

Of special interest was Primary’s report into its healthcare professionals, with retention rising 32%. While space restrictions limit my discussion, interested shareholders should have a look at page 9 of the half-year report to see Primary’s new range of billing arrangements with its practitioners.

Now What?

Primary expects a stronger second half, and is transitioning to a ‘capital-light acquisition model’ thanks to the establishment of the Primary Healthcare Property Trust. This should allow the company to grow incrementally without fronting all of the capital itself. Management expects the impact of recent cuts to billing from the government’s MYEFO update can be mitigated through identified cost savings.

Primary cut back its acquisitions in the half, reporting positive cash flow which was an improvement from the previous period. Pleasingly, despite heavy media coverage around cuts to funding, Primary continued to report acceptable volume growth across its major segments, which reinforces the growing long-term demand for healthcare.

Management confirmed its previous guidance of Underlying Profit After Tax of $110m for the full-year, although this remains subject to trading conditions and possible regulatory changes.

Although today’s results were of mixed quality, Primary shares are also not priced for a hugely successful future, and with underlying demand growing despite funding pressure, Primary Health Care could be a profitable investment for the patient.

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Motley Fool contributor Sean O'Neill has no position in any stocks mentioned. Unless otherwise noted, the author does not have a position in any stocks mentioned by the author in the comments below. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.