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Vision Eye Institute Ltd jumps on earnings surprise: What you need to know

Vision Eye Institute Ltd (ASX: VEI) gave investors a nice surprise late on Tuesday when it released a trading update, forecasting higher-than-expected earnings for the year just ended. The shares rose 6.9% to close the session at 78 cents.

The company, which is Australia’s largest provider of ophthalmic care, has been a somewhat volatile performer for investors in recent years and has generally underwhelmed investors with its earnings results most recently. At its half-year results presentation, for instance, it reported flat revenue of $54.9 million, an 11% decline in profit after tax and no dividend.

The Results

Before the closing bell yesterday however, management said it expects earnings before interest, tax, depreciation and amortisation (EBITDA) for the 2015 financial year to be around $27 million, which compares to previous EBITDA guidance of between $25 million and $26 million.

The result was bolstered by the company’s nine day surgeries consisting of 11 theatres which the company said helped bolster its balance sheet and improve its income stream, whilst also providing a solid platform for future earnings growth.

Encouragingly, it also allowed the company to double its final dividend compared to last year’s with management expecting to declare a distribution of 2.5 cents per share. Furthermore, it also expects to resume the former dividend policy of regular interim and final dividends with a target payout ratio to be set between 30% and 50% of net earnings.

The Outlook

Management also provided an outlook for the 2016 financial year, forecasting EBITDA of $26 million without taking into account additional acquisitions in the Day Surgery sector.

The group’s chairman Shane Tanner said “the company is actively evaluating a number of growth opportunities in the Day Surgery market and is confident of further announcements in coming months. Vision has minimal net debt and has significant capacity available to fund such growth as it occurs.”

The Takeover

In something of a shock announcement, Vision Eye received a takeover offer from Pulse Health Limited (ASX: PHG) earlier in the month. What made the offer so strange is that Pulse Health is considerably smaller than Vision Eye while Primary Health Care Limited (ASX: PRY) was also seen by many investors as the most likely suitor, considering it owns roughly 22% of the business.

In yesterday’s update, management stated that the ‘hostile’ takeover offer was still ‘uncertain, speculative, and highly conditional’. At this point, Vision Eye has urged shareholders to take no action and to instead wait for its statement explaining the concerns shared by the Board which should be posted to the market early next week. Watch this space for any updates on the matter.

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Motley Fool contributor Ryan Newman has no position in any stocks mentioned. You can follow Ryan on Twitter @ASXvalueinvest.

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.