MENU

Primary Health Care: 50% profit rise

Medical centre owner Primary Health Care (ASX: PRY) has reported a 50% increase in profits to $69.5 million for the six months to December 2012.

Primary also provides pathology and imaging services, competing against the likes of Sonic Healthcare Limited (ASX: SHL), and expects earnings per share growth for the full year of between 20-25%.

That’s despite patient numbers being low due to a cautious consumer said the company. Strong underlying growth and further benefits from economies of scale and operating efficiencies should allow the company to grow earnings per share.

The closure of 44 pathology collection centres in the past month by private equity backed Healthscope should also provide a further benefit.

However, some analysts weren’t convinced by Primary’s result. Macquarie notes that free cash flow was less than half the reported profit, and leftover funds of $34.8 million means the company will just have enough cash to pay its dividend. That marks a significant change, as previously Primary has generally paid its dividends with debt funding in the past. Macquarie has an ‘underperform’ rating on the stock.

With an aging population, which brings an increased demand for medical services, healthcare companies such as Primary, Sonic, Ramsay Health Care Limited (ASX: RHC) and Sigma Pharmaceuticals (ASX: SIP) should be set to take advantage, although they may be limited to some extent by government intervention.

According to an Australian Institute of Health and Welfare report released in September 2012, expenditure on health reached $130.3 billion in 2010/11. On average, that’s $5,800 spent on health needs for each Australian every year, and growing at over 5% per year, on average.

Foolish takeaway

Primary declared a fully franked interim dividend of 6.5 cents, which puts it on a dividend yield of around 2.9%, based on the current price of $4.57. With a return on equity of less than 10%, more than $1 billion of net debt, over $3 billion of goodwill and sporting a P/E ratio of around 19, Foolish investors could be forgiven for looking elsewhere.

In the market for high yielding ASX shares? Get “3 Rock-Solid Dividend Stocks” in our special FREE report. Click here now to find out the names, stock symbols, and full research for our three favourite income ideas, all completely free!

More reading

The Motley Fool’s purpose is to help the world invest, better. Click here now for your free subscription to Take Stock, The Motley Fool’s free investing newsletter. Packed with stock ideas and investing advice, it is essential reading for anyone looking to build and grow their wealth in the years ahead.  This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson. Motley Fool writer/analyst Mike King doesn’t own shares in any companies mentioned.

The 5 mining stocks we’re recommending in 2019…

For decades, Australian mining companies have minted money for individual investors like you and me. But if you believe the pundits and talking heads on TV, those days are long gone. Finito! Behind us forever…

We say nothing could be further from the truth. To earn the really massive returns, you’ve got to fish where others aren’t fishing—and the mining sector could be primed for a resurgence. That’s why top Motley Fool analysts just revealed their exciting new research on 5 ASX miners they believe could help you profit in 2019 and beyond…

Including:

The best way we see to play the global zinc shortage… Our #1 favourite large-cap miner (hint: it’s not BHP)… one early-stage gold miner we think could hit the motherlode… Plus two more surprising companies you probably haven’t heard of yet!

For free access to our brand-new research, simply click here or the link below. But be warned, this research is available free for a limited time only, and we reserve the right to withdraw it at any time.

Click here for your FREE report!