Healthscope Limited (ASX: HSO)

HSO Details

Rejection of takeover bids and strategic review of hospital property portfolio: Healthscope, which has an attractive and a uniqueportfolio of property assets, hasdecided that it will not providedue diligence access to either the BGH; AustralianSuper Consortium or Brookfield. It also decided that it will be undertaking a strategic review of its hospital property portfolio. This strategic review will explore the merits of a sale of any leaseback transaction so that it can unlock the value for its shareholders in the near term. The Board and the advisers carefully reviewed both proposals and the Board believes that the proposals undervalue the Company having regard to various matters including the expected improvement in its operating performance in FY19 and the returns which the Group will be receiving from its Brownfield capital investment program. Each proposal requires an extensive due diligence at a critical time prior to the opening of the Northern Beaches Hospital. Additionally, each proposal was subject to numerous conditions and placed various restrictions on the Company and on each other.


1HFY18 Opearting EBITDA contribution (Source: Company Reports)

The Board concluded that it is not in the best interests of Healthscope shareholders to provide due diligence access to either party. The Group continues to make significant investments towards its hospital portfolio that are expected to deliver profitable growth and increased returns to its shareholders. The Group has already taken necessary steps to improve its core business and the outcome of its portfolio review being announced. The Group at present owns 29 freehold properties that are expected to have a market value well in excess of their current book value of approximately $1.3 billion. It announced the closure of Geelong Private Hospital and Cotham Private Hospital after an exhaustive evaluation of alternatives but unfortunately it found that it was simply not viable to continue operations into the future. The Company however, expects Hospital Operating EBITDA for FY18 to be between $340 million and $345 million as compared with FY17 Hospital Operating EBITDA of $359.4 million with some softness in demand scenario. Nonetheless, the group is targeting Hospital Operating EBITDA growth of at least 10% in FY19. The stock has been rising up and was up by 30.85 per cent in last six months, and by 21.18 per cent in last one month given the acquisition news. The stock price was down by 2.44 per cent on 22 May 2018 given the company update on considerations of the acquisition proposals. We give a “Hold” recommendation at the current market price of $2.4.
 

HSO Daily Chart (Source: Thomson Reuters)
 

Estia Health Limited (ASX: EHE)

EHE Details

Dip in Earnings per share: Estia Health Limited, being one of Australia’s largest aged care providers dropped by 3.2 per cent on 22 May 2018 in terms of stock price. The Group had already reaffirmed its full-year earnings guidance, as it continued to achieve revenue growth while containing costs and executed its strategy of expanding and improving its portfolio. Its first half-yearly results for FY18 reflected the Company’s outstanding performance in terms of its operations and financial results. It applies a prudent approach to cost management. The Group tries to maintain its average occupancy of 94% throughout the period and continues to grow its revenue. It focuses on expanding its portfolio in strategically important locations like by opening its first newly developed home at Twin Waters on the Sunshine Coast and continues to invest in improving the quality of its existing homes.


Average Period Occupancy Trend (Source: Company Reports)

The Group declared an interim dividend of 7.8 cents per share, fully-franked, representing a pay-out ratio of 100 per cent of Net Profit After Tax for the period. However, EHE expects a capital expenditure of circa $40 million for the remainder of FY18 and it has a strong balance sheet and undrawn banking facilities to support this investment.Meanwhile, a dip of 24.5 per cent in EPS was observed as compared to 1HFY17 which was primarily driven due to the dilution impact of FY17 capital raise. It recorded a diluted EPS of $10.26 per share in 1HFY17 and $7.75 per share in 1HFY18. Credit Suisse Holdings (Australia) Limited ceased to be a substantial holder of the Group since 11 May 2018. Perpetual Limited, being a substantial holder of the Group changed its holding on 1 May 2018 from 14.28 per cent of the voting power to 10.79 per cent of the voting power. The Group will announce its FY18 full year results for the period ending 30 June 2018 on 16 August 2018. Since, one year, the stock was up by 13.73 per cent but fell by 6.45 per cent in last six months. The stock prices fell marginally in last five days that is by 0.29 per cent. The stock is inching towards its 52- week high price that is $3.93, and looks “Expensive” at the current market price of $3.37.
 

EHE Daily Chart (Source: Thomson Reuters)
 

Oncosil Medical Limited (ASX: OSL)

OSL Details

Focus on commercialisation of the radiation treatment: Oncosil Medical, amedical device company focuses on localised treatments for patients with pancreatic and liver cancer. Its product, OncoSil™ is a targeted radioactive isotope (Phosphorus-32), implanted directly into a patient’s pancreatic tumour via an endoscopic ultrasound, and recently the company has submitted a detailed clinical report outlining its emerging performance and safety data for the OncoSil™ device to the British Standards Institute (BSI). The Group has progressed remarkably over the past 12 months towards patient recruitment and the excellent early trial data. One of its Directors, Dr Roger Aston, having a direct interest in the Company acquired 500,000 shares for a consideration of $60,000. It continues its focus to commercialise the breakthrough OncoSil™ treatment with the support of its shareholders towards recent capital raising. The Group recently completed its Share Purchase Plan (SPP) which closed oversubscribed, with SPP applications materially exceeding the aggregate capped amount of $4.0 million. Surgical resections were an important clinical milestone for the Company as it demonstrated its potential for the OncoSil™ device, in combination with chemotherapy, to ‘down-stage’ selected patients’ tumours from an initially inoperable state to a surgically respectable state. While the group is yet to build on its return on equity (ROE in 2016 was (43.8 per cent) and whereas in 2017, it was (56.3 per cent)); it is looking forward to seeking some strategic partnerships and license agreements in key geographies. The stock was up by 11.11 per cent in the past six months and was down by 3.23 per cent in the past one week. It is worth noting that the stock was up by 275 per cent in last five years. We give a “Speculative Buy” recommendation at the current market price of $0.15.
 

OSL Daily Chart (Source: Thomson Reuters)

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