Primary Health Care Limited (ASX: PRY) announced today a series of strategic growth initiatives and a potential acquisition that will be funded by an underwritten $250 million pro-rata entitlement offer of 1 for 5.21 new shares at $2.50 per share.
The offer price is 21% lower than the latest Primary Health Care share price which closed at $3.20 last Friday.
The shares have now been placed into a trading halt until Wednesday 22 August.
Growth initiatives
The capital raised will be used to fund various growth initiatives including a $140 million medical centre investment program and a $100 million pathology investment program.
The medical centre investment program is expected to modernise 52 facilities and generate a 20% return on capital over the next three years while the pathology investment program is expected to deliver a net benefit of $20 million per annum once fully implemented.
$140 million acquisition
Primary Health also announced that they are in exclusive negotiations to acquire a leading day hospital operator.
The investment, which is subject to final negotiations and due diligence, could require a potential investment of $140 million over three years with an upfront payment of $75 million.
The acquisition, if it proceeds, would be at an EBITDA multiple of 20x based on the company's expected FY 2018 EBITDA of approximately $7 million.
Primary Healthcare indicated that their largest shareholder, Jangho Group, are supportive of the initiatives and have committed to subscribe 100% of the offer.
What now?
Whilst there already had been speculation of the capital raise, the announcement overshadowed the release of Primary Health Care's FY 2018 results which showed a 5% increase in revenue to $1.7 billion, underlying profit of $92 million (consistent with FY 2017) and full year dividends of 10.6 cents per share.
Investors will now have to consider whether it's worth participating in the entitlement offer or whether that money is better spent elsewhere.
Whilst long-term trends (including an ageing and growing population) could benefit the company, the Australian healthcare market has been experiencing tough trading conditions lately with shares in other operators such as Healthscope Ltd (ASX: HSO) and Ramsay Health Care Limited (ASX: RHC) all down by double digits from recent highs.
I think that whilst investors risk getting diluted significantly, there are better opportunities out in the market right now. A good place to start might be this list of best shares to buy right now compiled by our team of experts.
