The Healthscope Ltd share price is down 5% after its unhealthy report

The Healthscope Ltd (ASX: HSO) share price has fallen by 5.24% so far today after reporting.

The private hospital operator reported its half-year result to 31 December 2017, here are some of the highlights compared to the prior corresponding period:

  • Group revenue up 4.9% to $1.22 billion
  • Hospitals operating earnings before interest, tax, depreciation and amortisation (EBITDA) down 8.6% to $170.7 million
  • Group operating net profit after tax (NPAT) down 17% to $78.2 million
  • Statutory NPAT down 12.8% to $77.5 million
  • Dividend down 8.6% to 3.2 cents per share

This is clearly disappointing after a string of poor results from Healthscope, particularly when compared to the progress Ramsay Health Care Limited (ASX: RHC) is making.

Management said this result was expected, as indicated in the FY17 result presentation. But that doesn’t make it any easier to swallow for shareholders.

The company said that the profit decline was due to a few different reasons. The first reason was that there were softer private hospital market conditions with variability in patient case mix and a range of costs including wages which have risen faster than health fund price indexation.

The next reason was that there were one-off planned brownfield expansion disruptions. The final reason was that the performances of Holmesglen Private and Frankston Private were disappointing.

However, management are confident that the second half of the year will be positive for hospital operating EBITDA, with the full-year expected to be in line with FY17. Recently completed and maturing brownfield sites, earlier-than-planned benefits from the ‘Group Hospitals Best Practice Project’ of $6 million and the one-off costs experienced in this half won’t happen again.

The company said that the Northern Beaches Hospital build was ahead of schedule, which will result in additional capital expenditure to be incurred earlier than anticipated.

All of the debt statistics worsened due to the fall in profit, but management said that it has comfortable headroom under senior debt covenants.

Foolish takeaway

Healthscope believes that the medium to longer-term fundamentals of the industry are unchanged and there should be continued growth for hospital admissions. It believes that the government action to support private healthcare should help things turn around.

A lot hinges on the Northern Beaches Hospital to grow earnings for the company when it’s finished. As a shareholder the last year has been difficult but I will continue to hold for the long-term theme, hopefully that turns out to be the right thing to do.

These top stocks may be better long-term choices over Healthscope.

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Motley Fool contributor Tristan Harrison owns shares of HEALTHSCPE DEF SET and Ramsay Health Care Limited. The Motley Fool Australia has recommended Ramsay Health Care Limited. 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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