Stocks’ Details
 

Ramsay Health Care Limited

Federal Court Passed Judgement in Favour of RHC: Ramsay Health Care Limited (ASX: RHC) is a well-known hospital group, which owns and operates numerous healthcare facilities throughout Australia, France, Indonesia, Malaysia and the United Kingdom. The market capitalisation of the company stood at $12.63 Bn as on 16^th March 2020. Recently, the Federal Court dismissed proceedings against RHC, which were instituted by the Australian Competition and Consumer Commission (ACCC) in May 2017. The court stated that the company was not indulged in anti-competitive conduct in the Coffs Harbour region with respect to the proposed establishment of a competing private day surgery facility. 

The financial profile of the company remained solid in 1H FY20 and its businesses in the UK, Continental Europe and Asia have performed well, but this was partially offset by more challenging conditions in Australia. The Board of the company has recently announced a fully franked interim dividend of 62.5 cents, reflecting a rise of 4.2% over pcp. RHC will pay the said dividend on 27^th March 2020.


Key Dates 2020 (Source: Company Reports)
 
Focus for Year Ahead: For FY20, the focus of RHC revolves around growth in every aspect. Moreover, the Management of the company has continued to identify and investigate acquisition and expansion opportunities and partnerships with government and other private healthcare providers. Also, the company is expecting some impact from COVID1-19 on its global business.

Valuation Methodology: P/E Multiple Based Relative Valuation

P/E Based Valuation (Source: Thomson Reuters)
 
Note: All forecasted figures have been taken from Thomson Reuters, NTM: Next Twelve Months

Stock Recommendation: Net margin of RHC stood at 4.2% in 1H FY20 as compared to 3.3% of the industry median. This reflects that the company has decent capabilities to convert its topline into the bottom line against the broader industry. Return on equity stood at 10.5% in 1H FY20 against 6.8% of the industry median.We have valued the stock using P/E based relative valuation method, and for the purpose, we have taken peers such as Cochlear Ltd (ASX: COH), Sonic Healthcare Ltd (ASX: SHL) and Ansell Ltd (ASX: ANN) and arrived at a target price, which is offering an upside of lower double-digit (in percentage terms). Hence, considering decent capabilities to convert its top-line into the bottom-line, returns provided to shareholders and valuation, we give a “Buy” recommendation on the stock at the current market price of $56.170 per share, down by 10.128% on 16^th March 2020.

Pro Medicus Limited

Secured Two Key Contracts: Pro Medicus Limited (ASX: PME) is engaged in the development and supply of software and IT solutions to the public and private health sectors with the market capitalisation of $1.73 Bn as on 16^th March 2020. During 1H FY20, PME secured two key contracts, which include a contract of $9 million with the Ohio State University Wexler Medical Center with the tenure of five-years. It also inked another five-year contract with Nines Inc of $6 million. Revenue from operations for the period amounted to $29.3 million, reflecting a rise of 15.7% over pcp. Also, the company declared fully franked interim dividend amounting to 6 cps with a rise of 71.4%.


Revenue Split (Source: Company Reports)

Stock Recommendation: The company managed to close the half-year with strong cash and nil debt position. Gross margin and EBITDA margin of the company stood at 99.4% and 63.5% in 1H FY20, reflecting YoY growth of 4.4% and 1.1%, respectively. Current ratio of PME stood at 4.41x in 1H FY20 with YoY growth of 14.0%, which implies that it has enhanced its position to address its short-term obligations. Therefore, in light of decent growth in margins, improved liquidity position and debt-free position, we give a “Buy” recommendation on the stock at the current market price of $15.500 per share, down by 6.739% on 16^th March 2020.

Healius Limited

HLS Rejected Indicative Proposal: Healius Limited (ASX: HLS) mainly provides medical, para-medical and related services. It also works as a day surgery operator. Recently, the company has received an indicative proposal to acquire all the shares in the HLS for $3.40 cash per share by way of a scheme of arrangement from an entity associated with Partners Group. However, the Board has unanimously rejected the proposal post careful consideration as well as after consulting with the some of its largest shareholders. HLS rejected the offer on the basis that the offer neither reflects the fundamental value of HLS nor reflects compelling value for exclusive due diligence.

During 1H FY20, group revenue amounted to $945.1 million with a growth of 7%. This was underpinned by growth in Pathology and Montserrat.

Topline and Bottom line Growth (Source: Company Reports)

Guidance for UNPAT: For FY20, the company is expecting underlying NPAT in the range of $96 million and $102 million. It is also intending to divest a part or all the Medical Centres business in order to focus on several growth initiatives in the Diagnostic divisions.

Stock Recommendation: HLS possessed a strong balance sheet at the end of half-year with decent leverage within covenants. The company is focused on managing debt levels for balancing an optimal gearing ratio with capital needs and dividends. On TTM basis, HLS has EV/Sales multiple of 1.9x as compared to the industry median (Healthcare) of 7.1x. The stock of Healius is trading at a P/BV multiple of 0.8x against industry median (Healthcare) of 2.0x on TTM basis. Thus, considering strong balance sheet and focus of management on debt levels, we maintain a “Hold” rating on the stock at the current market price of $2.420 per share, down by 10.701% on 16^th March 2020. 

Capitol Health Limited

Strong Results in 1H FY20: Capitol Health Limited (ASX: CAJ) is engaged in medical diagnostic imaging with a market capitalisation of $189.95 Mn as on 16^th March 2020. CAJ recently announced that Challenger Limited and its entities has made a change to their substantial holdings in the company on 5^th March 2020 and the current voting power remains at 11.60% as compared to the previous voting power of 10.29%. During 1H FY20, the company reported solid statutory results with the revenue amounting to $80.6 million and underlying EBITDA of $13.7 million. These results have been mainly supported by organic growth initiatives.


Profit & Loss Summary (Source: Company Reports)

Growth in FY21: For FY20, the company is expecting moderate growth in underlying EBITDA. CAJ anticipated that its investment in systems, process and capacity would provide stronger growth in FY21.

Valuation Methodology: EV/Sales Multiple Based Relative Valuation

EV/Sales Based Valuation (Source: Thomson Reuters)
 
Note: All forecasted figures have been taken from Thomson Reuters, NTM: Next Twelve Months

Stock Recommendation: For 1H FY20, the company declared interim dividend amounting to 0.5 cents per share. It closed the half-year with unused facilities of $90 million with net debt of $44.5 million. We have valued the stock using EV/Sales based relative valuation method and arrived at a target price, which is offering an upside of lower double-digit (in percentage terms). Therefore, considering the strong results in 1H FY20 and expected growth in FY20 and FY21, we give a “Speculative Buy” recommendation on the stock at the current market price of $0.255 per share, up by 4.082% on 16^th March 2020.

 
Comparative Price Chart (Source: Thomson Reuters)

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