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Takeover target Healthscope Ltd releases trading update

Shares in private hospital operator Healthscope Ltd (ASX: HSO) traded flat today after the takeover target provided a trading update where the group reaffirmed financial year 2019 guidance for hospital operating EBITDA growth of 10%.

For the quarter ending September 30 2019, Healthscope reported that it had achieved hospital operating EBITDA growth of 10.4%, compared to a 6.8% decline in the prior corresponding quarter.

The group also flagged that it opened its new Sydney’s Northern Beaches hospital over the quarter that was built at an estimated cost of $840 million, with the company expecting to receive a “state capital payment of $400 million” relating to the build.

The group said the new hospital is expected to deliver “over $300 million in additional revenue and an EBITDA return on invested capital of at least 15%”.

Healthscope is currently the subject of a $2.36 per share takeover offer from a consortium of capital market players including Australian Super and BGH, with the Healthscope board currently giving consideration to the offer.

As at October 31 the consortium seeking to takeover Healthscope owns 19.13% of the shares on issue.

In May 2018 it was also subject to a conditional $2.50 per share takeover to Canadian asset management and property development specialist Brookfield that Healthscope’s board also rejected.

In 2015 and 2016 Healthscope’s shares occasionally traded above $3 before a shock profit warning in October 2016 sent the share price into a nosedive. The problems were blamed on declining private healthcare affordability translating into lower hospital admissions.

Healthscope is largely focused on Australia unlike larger rival Ramsay Healthcare Ltd (ASX: RHC) that has continued to perform well in Australia, but struggled a little overseas in regions like the UK and France.

Healthscope’s board maintains that the group is set to return to growth after labelling financial year 2018 a year of transition. In FY 2018 it paid a full year dividend of 6.7 cents, although it delivered basic earnings per share of just 4.4 cents. Total debt also stood at $1,946 million versus $156.8 million cash in hand.

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Motley Fool contributor Yulia Mosaleva owns shares of 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 Scott Phillips.

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