The Healius Ltd (ASX: HLS) share price has been bouncing around in recent trading sessions.
This has been caused by a mixed reaction to a new acquisition, with some analysts questioning the price it paid.
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What did Healius acquire?
Last week Healius announced an agreement to acquire leading bioanalytical laboratory business Agilex for an enterprise value of $301.3 million.
Agilex is expected to generate revenue and EBITDA in the range of $36-40 million and $14-16 million, respectively, in calendar year 2022. This values the transaction at 20x forward EBITDA.
Though, management does note that Agilex has strong future earnings growth potential and is expected to deliver low single digit earnings per share accretion in the first full year of ownership.
The reaction
The team at Citi was not overly impressed with the deal. In response the broker retained its neutral rating and $5.10 price target on Healius' shares.
Citi commented: "We place a lot of emphasis on ROIC when assessing businesses because high excess returns have a positive compounding effect on valuations. We estimate the proposed HLS acquisition of Agilex was priced at a ~20x EBITDA or CY22E EBIT ROIC of <5%, well less than the cost of capital. It is not obvious to us that this acquisition is so strategic that it justifies the price paid."
Elsewhere, Morgans has a few concerns over the price paid, but not enough to stop it from upgrading Healius' shares to an add rating with a $5.79 price target.
Morgans commented: "Healius is acquiring Agilex Biolabs, a leading Australian bioanalytical laboratory, for A$301.3m in cash funded via existing debt. We see limited conditions to close (Jan-22), with the transition expected to be low single digit EPS accretive in the first full year. However, paying a peak multiple (20x EV/EBITDA) in a frothy market sees return metrics fall short and reliant on future above market growth for shareholder value."
Nevertheless, thanks to strong COVID-19 testing demand, the broker has upgraded its earnings estimates and recommendation accordingly.
The broker concluded: "While we view adding a pricey clinical testing company adds another layer of complexity as the company continues to transition to a specialist diagnostic and day hospital operator, the near term remains all about COVID testing, with Omicron driving a new phase of the pandemic which we view as underappreciated by the market."
In early trade on Tuesday, the Healius share price is up over 1% to $5.36.
