Healius Limited

HLS Details

Quarterly Business Updates: Healius Limited (ASX: HLS) is a service company for medical, para-medical, and related services, and day surgery operator. As on 22 October 2020, the market capitalisation of the company stood at ~$2.14 billion. The company has recently released its results for the first quarter of 2021, wherein it reported an increase in revenue to $492.5 million, up from $419 million in 1Q20. In the same time span, underlying EBIT of the company went up to $81.2 million, up from $32.4 million in the pcp. In terms of trading trends, pathology revenues have been strong in the first quarter, but imaging revenues fluctuated due to the Victorian lockdown. The company has also appointed Ms Jenny Macdonaldas an independent non-executive Director, with effect from 2 November 2020.

FY20 Financial Highlights: During FY20, HLS delivered an underlying NPAT of $55.4 million from continuing operations as compared to $70.3 million in the prior comparable period. The company also reported a healthy balance sheet with ratios within bank covenants, increased liquidity, and a successful refinancing of the tranche 1 debt facility.

HLS Financial Highlights (Source: Company Reports)

Outlook: The company may have a positive as well as a negative impact from the COVID-19 pandemic. However, the company seems well-placed to leverage its established market positions and balance sheet strength. The company is focusing on delivering growth to its shareholders by driving better margins and top-line growth in the near-term. It also aims to improve the front-end experience of its patients and build a substantial third business in Short-Stay Hospitals.

Valuation Methodology: Price to Earnings Multiple Based Relative Valuation (Illustrative)

Price to Earnings Multiple Based Relative Valuation (Source: Refinitiv, Thomson Reuters)

 Note: All the forecasted figures are taken from Thomson Reuters, NTM: Next Twelve Months

Stock Recommendation: The company is creating value for consumers, employees, and investors. The company retains a healthy outlook for FY21 and expects regular dividends to re-commence in the first half of 2021. As per ASX, the stock of HLS is trading close to its 52-weeks’ high levels of $3.82 but retains potential for further growth. The stock of HLS gave a return of 55.37% in the past six months and a return of 8.67% in the last one month. On a technical front, the stock of HLS has a support level of ~$3.384 and a resistance level of ~$3.822. We have valued the stock using the price to earnings multiple based illustrative relative valuation and have arrived at a target price with an upside of lower double-digit (in percentage terms). For the said purposes, we have considered Sonic Healthcare Ltd (ASX: SHL), Ramsay Health Care Ltd (ASX: RHC), Ansell Ltd (ASX: ANN) etc., as peers. Considering the current trading levels, decent returns in the past six months, modest long-term outlook, decent quarterly financial performance and key investment risks, we recommend a ‘Hold’ rating on the stock at the current market price of $3.760, up by 9.302% on 22 October 2020, owing to the recent release of its trading update.  

HLS Daily Technical Chart (Source: Refinitiv, Thomson Refinitiv)

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