3 rival healthcare stocks for Healthscope’s potential return

It has been reported that the healthcare company Healthscope, which was taken private and delisted in November 2010, may be possibly preparing to re-list or be put up for sale by private equity group owners TPG and The Carlyle Group. The company was acquired for $2.7 billion, but the price tag now may be as much as $4 billion by some estimates.

It operates 44 hospitals in Australia and pathology businesses in Australia, Singapore, Malaysia and New Zealand. Amongst private sector hospital operators it is number two, following Ramsay Health Care Limited (ASX: RHC).

If it re-listed, what kind of competition would it have for investors’ attention?

The largest healthcare company on the ASX is Ramsay Health Care at $8.7 billion, operating about 151 hospitals both in Australia and overseas. In 2013, it had NPAT of $292.8 million on a total revenue of $4.17 billion. Annual median EPS growth over the past five years has been 16.1%, and it has a 31.7 PE and a 1.63% dividend yield.

For 149.4 million euros, it recently acquired the French Medipsy hospital group that has 30 psychiatric hospitals and more than 2,600 beds. Medipsy is the leading psychiatric hospital operator in France, its annual revenue is about 150 million euros.

Sonic Healthcare Limited (ASX: SHL), the $6.68 billion medical diagnostics company provides pathology and radiology services to medical practitioners. In the pathology services industry, the company holds a 41.1% share of the market, turning over $3.48 billion, with NPAT of $339.6 million in 2013.

It has international operations in seven countries, from which it derives approximately half of its total revenue.  It has a PE of 19.9 and a 3.72% dividend yield.

Primary Health Care Limited (ASX: PRY) is also a major healthcare service provider through its 87 pathology labs and 782 collection centres across Australia. This $2.51 billion company has a network of medical centres where general practitioners and specialists operate their own businesses and practices. In addition, it offers healthcare technology solutions through equipment and health related software products.

According to IBISWorld, it has a 32.7% market share of the pathology services industry, putting it at number two in the country just after Sonic Healthcare, and ahead of Healthscope’s 7.9% share of the market.

It raised its NPAT by 27.8% from $118.9 million to $152 million in 2013, and its past five-year EPS growth rate has been a compound annual 7.84%. Its dividend yield is 3.52% and PE is 16.6.

Foolish takeaway

From Healthscope’s website, you can look at the annual reports and investor presentations. It reported $2.21 billion in revenue in 2013, upon which it achieved an EBIT of $236 million, up 8.1% from FY2012.

However, after $165.6 million in abnormals, mostly from a $120 million write-down of goodwill, it reported a $117.1 million net loss after abnormals. It is probably for the best to clear the decks before an IPO or potential business sale.

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Motley Fool contributor Darryl Daté-Shappard does not own shares in any company mentioned. 

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