Primary Health Care shares take a hammering

KeepHealthCare.ORG – Primary Health Care shares take a hammering

Primary Health Care has been one of the worst performers on the ASX on Thursday , tumbling almost 11 per cent after UBS highlighted several earnings headwinds at the medical centres and pathology operator.

New lead healthcare analyst Saul Hadassin – who jumped ship from Credit Suisse and replaced long-serving Andrew Goodsall –  culled the prior UBS call from ‘buy’ to ‘sell’ and lowered the price target to $3.50 from $4.00 a share.

By 1245pm AEST, the stock fell 29¢, or 7.5 per cent, to $3.57 per share, after earlier falling as much as 10.5 per cent. The share price is still well above its 52-week low of $3 hit in October.

Mr Hadassin cut his earning per share estimates for the next two financial years, by 8 per cent  and 9 per cent, respectively, compared with previous estimates. UBS is now forecasting moderate 2 per cent 2018 full-year net profit growth of $94 million, within company guidance range of $92 million to $97 million.

Two key questions were raised in his note: how long will it take to improve the fortunes at the troubled medical centres business and can earnings growth in the diagnostics division offset contraction in the medical centres?


The answer was not pretty, noting the turnaround in medical centres will be “protracted” and “require significant investment in IT systems”, while the better earnings growth from diagnostics is unlikely to offset poor performance in medical centres in the near term.

Primary flagged in February that the recruitment of doctors at its medical centres business remains tough but it launched a new strategic initiative, Project Leapfrog, in order to revamp the 70-odd medical centres by offering more services and driving operational efficiencies through digitisation. 

“Primary’s earnings outlook remains challenging, despite an apparent improvement in diagnostic services volume, as per Medicare data,” Mr Hadassin said.

“The company continues to report a number of non-recurring costs (restructure/strategic investment) impacting on the quality of earnings and flattering current trading multiples.”

Mr Hadassin said on the upside, with around 85 per cent of Primary’s pathology, GP and imaging revenues funded by Medicare, recent volume growth recovery should translate to modest divisional earnings growth.

However, Primary is facing a number of issues which are likely to negatively impact earnings over the next few years including: the loss of the National Bowel Cancer Screening contract to rival Sonic, changes to MBS rules for rural GP bulk-billing incentive items; restricting GP knee MRI referrals for people greater than 50 years which kicks in from November, and the outcome of the Fair Work Commission review into wage costs at its Dorevitch Pathology business in Victoria (and the potential for a retrospective payment to some staff).


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