Healthscope Ltd (ASX: HSO) is the second-largest provider of private hospital services in Australia and a leading provider of pathology services in New Zealand, Malaysia, and Singapore.
Its share price has been troubled over the last year following announcements that the company was experiencing weaker-than-expected sales volumes which would translate to flat earnings growth for the year when annualised.
In addition to this, the company announced the sale of its medical centres for $55m, a massive discount to book value which resulted in a non-cash impairment loss of $54.7m in relation to the sale.
Despite its challenges, Healthscope was my top pick for November for the following reasons:
- Great long term prospects. There is likely to be ongoing strong demand for Healthscope’s services due to an ageing population and the government’s support for private health operators. Healthscope’s position as the second largest private operator makes it well placed to take advantage of this long term trend.
- Valuation. In my view, the market sell off of Healthscope shares over the last year has made its valuation attractive. Its price to earnings ratio of 23 is much lower than its competitor Ramsay Health Care Limited (ASX: RHC) which has a PE ratio of 32. It is important to note however, that whilst Healthscope is only focused on the Australian market, Ramsay has significant international operations.
- Strong balance sheet. Healthscope raised capital and paid a significant portion of its debt resulting in a healthy and sustainable financial position. The company earns stable cash flow from the hospital business and whilst capital expenditure is forecast to be high over the coming years because of the brownfield hospital expansion program, cash flows from operations and existing debt facilities should be sufficient to cover this.
Overall, at a time where value is difficult to find, Healthscope is a business I would consider for my portfolio.
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Motley Fool contributor Kevin Gandiya has no position in any of the stocks mentioned.
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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.
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