Healius Limited

Key Takeaways from 1H Presentation: Healius Limited (ASX: HLS) is a service company for medical and para-medical and related services. The market capitalisation of the company stood at ~A$1.82 Bn as on 19^th July 2019. Recently, the company via a release stated that National Australia Bank Limited and its associated entities have ceased to be a substantial holder in the company on 15^th July 2019. The company published its first half results presentation wherein it communicated about its operational and financial performance for the period. There was double-digit growth in Imaging, and a good performance in Medical Centres partially offset the decline in Pathology with well-documented headwinds. The company’s reported EBIT reflects $21.7m of investment in strategic initiatives and set-up costs inc. Montserrat. In the 1H FY19, the company declared fully franked interim dividend of 3.8 cents per share, which is 60% of underlying net profit after tax. The following picture gives an idea of the company’s net debt:


Net Debt Reduction (Source: Company Reports).

What to Expect: The company has targeted $10 Mn EBIT uplift in 2H 2019 from productivity programs in Pathology and Imaging. It is anticipating underlying net profit after tax for FY 2019 to be between $93 Mn and $98 Mn. The strategies related to Imaging revolves around the revitalisation of community sites with a focus on the consumer value proposition. It is focused on labour and operating cost optimisation by standardising best-practice models. In terms of medical centers, it is focused on quality and value for patients and preventing hospitalisations.

Stock Recommendation: The gross margin and EBITDA margin of the company stood at 88.8% and 12.6% in 1H FY19 against the industry median of 22.3% and 7.5%, respectively. The current ratio of the company stood at 0.84x in 1H FY19, reflecting a rise of 2.6% on YoY basis. This indicates that HLS has improved its position to address its short-term obligations. The debt to equity ratio of the company stood at 0.37x in 1H FY19 against the industry median of 0.47x and it looks like that the company has lower debt as compared to the broader industry. Hence, considering the above-stated facts and decent outlook, we give a “Buy” recommendation on the stock at the current market price of A$2.940 per share (up 0.341% on 19^th July 2019).
 
 

Imagion Biosystems Limited

Breakthrough Device Status: Imagion Biosystems Limited (ASX: IBX) is involved into research and development of medical diagnostics. The market capiatalisation of the company stood at ~A$16.51Mn as on 19^th July 2019. Recently, the company, via a release, announced that it got the notification from the Center for Devices and Radiological Health of the Food and Drug Administration that the MagSense System and Test for staging HER2 breast cancer have qualified for and been granted the designation as a Breakthrough Device. The Food and Drug Administration’s designation of MagSense technology and HER2 test as a Breakthrough Device is a significant step in the company’s clinical development program. The company further stated that in order to qualify for Breakthrough Device status a product must be considered to “provide for more effective treatment or diagnosis of life-threatening or irreversibly debilitating human disease or conditions” and meet one of the following criteria:

• represent breakthrough technologies
• address an application for which no approved or cleared alternatives exist
• offer significant advantages over existing approved or cleared alternatives or
• be considered that the availability of the device is in the best interest of patients

The following picture depicts the company’s strategic plan:


Future Strategy (Source: Company Reports)

Future Aspects: The company is focusing on sustained growth in shareholder wealth, consisting of dividends and growth in share price, and increasing return on assets. The consolidated entity’s overall risk management program focuses on the unpredictability of financial markets and seeks to minimize potential adverse effects on the financial performance of the consolidated entity.

Stock Recommendation:  The company reported a debt to equity ratio of 0.01x in FY 2018. The current ratio of the company stood at 3.78x in FY18. Coming to the stock’s past performance, it yielded returns of 168.42% and 96.15% in the time span of one month and three months, respectively. The company’s net margin improved in FY 2018 on a YoY basis, which reflects that the company’s capability to convert its top line into bottom line has improved. However, the consolidated entity’s activities expose it to numerous financial risks like market risk, credit risk as well as liquidity risk. Currently, the stock is trading slightly towards its 52-weeks higher level of $0.083. Hence, considering the aforesaid facts and current trading level, we have a wait and watch stance on the stock at the current market price of $0.050 per share (down 1.961% on July 19, 2019).

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