The Primary Health Care Limited (ASX: PRY) share price fell 2% this morning after the company released a downgrade to the market.
Following the end of financial year 2017, Primary announced this morning that its profits were at the lower end of its guided range, and declared that the company would be taking a $575 million write-down. Here's what you need to know:
- Based on unaudited results, Primary confirms underlying net profit after tax (NPAT) is likely to be approximately $92 million, at the bottom end of guided range
- This is due to a decline in Medical Centre earnings, partly offset by improved Pathology and a robust performance in Imaging
- Primary will book a $575 million impairment relating to its Medical Centre sites, including the formerly Symbion sites that were acquired for a premium in 2008
- This is a non-cash impairment primarily to goodwill and will not affect company's banking covenants
The Medical Centre business continues to improve, with record new GP signings and improving retention levels. Additionally, Primary is both investing in the business via new IT systems, and cutting costs by stripping away layers of management. The company is loaded with a high level of debt, although it generated free cash flow at the most recent half year and should be able to continue meeting its debt obligations and paying dividends.
While that sounds promising, in my view Primary has some way to go towards reforming its business and its shares look overpriced today.
