The Capitol Health Ltd (ASX: CAJ) share price has exploded 17% higher this afternoon after the company revealed better-than-expected results for the six-month period ending December 31 2016. Below is a summary of the results.
- Operating revenue of $80 million, up 3% on prior corresponding period
- Full year guidance for operating revenue between $162 million to $165 million
- Full year "core radiology" EBITDA guidance of $19.5 million to $21.5 million
- First half EBITDA expected to be $9.3 million before restructuring costs
- Implemented $2.5 million to $3.5 million in annualised cost reductions
The Capitol Health share price has seen more ups and downs than a Himalayan footpath over recent years falling to 10 cents recently from a high over a $1 in 2015. Its problems have come about in part due to regulatory pressures as the government looks to rein in healthcare spending on Medicare diagnostic imaging billings.
Other diagnostic imaging and radiology businesses like Primary Health Care Limited (ASX: PRY) have also struggled as a result of regulatory changes, with the Primary share price down 12% on its full year results today.
In particular Capitol Health has flagged that New South Wales has seen weaker billings and the prospect of a further reduction to the government's bulk billing incentives still hangs over these businesses.
Outlook
On a market value of $65 million the company does not seem overly expensive, but investors should keep a close eye on cash flows, debt, and the overall strength of the balance sheet.
As can be seen with the recent performance company carries considerable regulatory risk and for that reason I am not a buyer of shares.
