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Why Lifehealthcare Group Ltd shares popped 8% today

Asides from average operating results in February, one of the other big factors weighing on Lifehealthcare Group Ltd’s (ASX: LHC) share price recently was the review of the government’s Prosthesis List, which covers the prices that can be charged for prosthetic implants. The media has widely reported that prostheses in Australia are substantially overpriced.

Media speculation was such that Lifehealthcare was forced to announce to the market that the variation between public and private pricing for prostheses that it supplied was approximately 3% – nowhere near the levels reported by the media. Additionally, Lifehealthcare also declared that it did not supply Cardiac Devices, Intra-ocular lenses, and Hips and Knees on a material basis – so this was unlikely to be affected by the review.

The market was not convinced, but investors who were brave enough to buy during the troughs earlier this year have done quite well, potentially up 50% since April:

source: Google Finance

source: Google Finance

Shares in fellow device supplier Paragon Care Ltd. (ASX: PGC) conversely slumped 3% today, although that company doesn’t appear to generate significant revenue from the affected prostheses either.

Even once Lifehealthcare shares rebounded from $1.50 to $1.70, the company was not expensive. Today’s prices reflect the improved cash performance in the second half of the year, although a number of headwinds remain and management has suggested margins could shrink again this year. Overall, today’s price appears to adequately factor in those headwinds.

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Motley Fool contributor Sean O'Neill owns shares of LifeHealthcare Group Limited. 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.

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