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Healius shares gain even as it downgrades guidance and cuts divided

The Healius Ltd (ASX: HLS) share price is bucking the weak market open this morning as the medical facilities operator reported its first half profit results and downgraded its full year profit guidance.

Helius, which used to be called Primary Health Care, has a lot riding on this result after it dismissed a takeover bid from Jangho Hong Kong Holdings last month.

The positive market reaction to its announcement will be a relief to management with the HLS share price gaining 1.1% to $2.89 in early trade (although it’s on weak volume) when the S&P/ASX 200 (Index:^AXJO) (ASX:XJO) index dipped below breakeven.

In contrast, the healthcare sector was dragged lower by the likes of the CSL Limited (ASX: CSL) share price and Healthscope Ltd (ASX: HSO) share price.

What’s in the result

However, the Healius share price is still well below the indicative and conditional offer price of $3.25 a share that Jangho is tabling.

Management is forecasting a better second half but has lowered its underlying net profit guidance to between $93 million and $98 million for FY19 compared to its previous guidance of around $100 million.

Perhaps no one quite believed the previous forecast. The revised guidance indicates a growth of between 0.8% and 6.2% to its bottom line and that’s still better than the slightly better than flat result it handed in for FY18.

Management will also be hoping that shareholders overlook the fact that underly net profit fell 10.5% to $39.4 million in the six months ended December 2018 versus the same time the year before, although underlying revenue eked out a 4.6% improvement to $870.6 million over the same period.

Ongoing and previously flagged issues with its pathology business were a drag and management said all divisions experienced “soft market conditions” in the first half although its imaging and medical centres divisions recorded a good performance.

Foolish takeaway

However, that wasn’t enough to save the company’s interim dividend, which was cut to 3.8 cents per share from 5.1 cents per share.

Shareholders will be hoping that the rebound in conditions in the current half will see the final dividend come in substantially higher than its interim payout.

But I think the company will come under increased pressure to justify not engaging with interested suitors, so we probably haven’t heard the last of the merger and acquisition (M&A) saga.

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Motley Fool contributor Brendon Lau owns shares of CSL Ltd. 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 Scott Phillips.