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Healius share price edges higher on update

The Healius Ltd (ASX: HLS) share price has edged 0.95% higher today, after the healthcare provider gave a trading update. According to Healius, a strong pathology recovery and cost management initiatives have underpinned an estimated $54 – $56 million profit for FY20. Healius also recently sold its medical and dental clinics. The sale will bring in approximately $470 million in 1H21, providing significant balance sheet flexibility. 

What does Healius do?

Healius delivers pathology and diagnostic imaging services across Australia and operates day hospitals in Victoria, New South Wales, Queensland, and Western Australia. Healius sold its 70 or so medical centres to BGH Capital in June. The centres are occupied by some 1,300 general practitioners, dentists, and specialists. 

What did Healius report? 

Healius reported FY20 underlying EBIT of $102 – 104 million with underlying NPAT of $54 – $56 million. Net debt was approximately $670 million at 30 June 2020 giving a bank gearing ratio of 2.7. The proceeds from the sale of the medical centres will be received in 1H21, adding $470 million to the company’s coffers. Healius is looking to ‘right-size’ overheads in FY21 and FY22 in order to expand margins. 

The pathology division contributed the bulk of earnings in FY20, with unaudited underlying earnings of $114 – $116 million. Imaging contributed $17 million and Montserrat Day Hospitals $3 million. In June, Healius noted good growth in activity post the impact of the March lockdown. Today’s strong result was driven by the pathology division trading plus rapid efforts to reduce costs when the extent of volume declines due to COVID-19 was unknown. 

The pathology division has been involved in the fight against COVID-19, undertaking up to 16,000 tests per day. Testing has rapidly escalated due to state-based testing initiatives and COVID-19 outbreaks. Healius undertakes nearly 50% of private testing in Victoria. Non-COVID pathology testing has also grown with the reopening of the economy nationally and is currently in the order of 5% – 10% behind the prior comparable period.

What is the outlook for the Healius share price? 

The sale of the medical centres is due to complete in the first half of FY21, with the proceeds delivering significant balance sheet flexibility. As part of the FY20 results, Healius expects to report an after-tax loss on discontinued operations in the order of $110 – $120 million relating to the medical centres. With the sale of the centres, Healius will have a good level of available liquidity together with significantly reduced requirements for ‘business as usual’ capital expenditure. At the time of writing, the Healius share price is sitting at $3.20.

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Motley Fool contributor Kate O'Brien has no position in any of the stocks mentioned. 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.

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Kate O'Brien