re: MAY not in big trouble,trouble yes
Jolly I think you got your title incorrect as it does not mention MAY directly in trouble , it says Health Care in trouble generally ?
They had a drop in earnings not a receivers notice
Earnings revision downwards. Post the reporting season, Mayne's forecasts have been reviewed and the following changes have been made. FY02 reported NPAT reduced to $204M (from $220M), FY03 reported NPAT reduced to $274M (from 311M). The normalised EPS forecast has reduced in FY03 to $0.434 (from $0.463 or 6%). On this basis the stock is currently trading on 12.2x FY03E norm. EPS.
The FY03E EV/EBITDA valuation has declined marginally to $6.76 (from $6.83), although this was previously reduced from $7.25 post the interim result. This valuation implies an FY03 PE multiple of 12.2x.
No change to Buy rating. While no major short-term catalyst is seen, it is expected that over the next six months the stock will trade towards the valuation post the full year result. The 12 month price target is set at $7.15 (6% above the valuation) – down from $7.70. Earnings revision
Post reporting season, Mayne's forecasts have been reviewed in light of the other healthcare results.
The major changes that were made are as follows:
FY02 EBIT – reduced from $342M to $$325M. FY03 EBIT – reduced from $440M to $436M. The major change to the FY02 EBIT was a reduction in the forecast margin for pathology (now 13.5% EBIT margin from 16% - reducing EBIT by $6.25M), as well as a minor reduction in the EBIT margin expected from hospitals (9.25% from 9.5%). In FY03, the revenue growth expectation in the hospital division has been reduced from 9% to 7%, reducing EBIT by $4M.
Above the EBIT line, depreciation in FY02 has been adjusted to $128M (from $121M) and in FY03 to $135M (from $122M). Additionally, goodwill amortisation in FY02 has been adjusted to $64M (from $56M) and in FY03 to $77M (from $70M).
Additionally, in FY02 interested expense has been reduced from $21M to $16M, and in FY03 the expectation has been reduced from $7M interest earned to $8M interest expense. Despite the company having an ungeared balance sheet in FY03, interest is expected given the spread from interest charged versus interest earned.
Taking these changes into account, FY02 reported net profit has been reduced from $230M to $203M (or 12%), and FY03 reported net profit reduced from $311M to $274M (or 12%).
The normalised EPS forecast has reduced in FY03 to $0.434 (from $0.463 or 6%). On this basis the stock is currently trading on 12.2x FY03E norm. EPS.
Despite the changes in the forecast, the valuation remains largely unchanged, down to $6.76 from $6.83. In this valuation, a 20% market discount has been used for hospitals, a market multiple for diagnostics, a 40% discount for logistics, a 10% market discount for Faulding healthcare and a market multiple for Faulding injectables..
The valuation of $6.76 implies an FY03E norm. EPS multiple of 15.6x, or a 9% discount to the All Industrials (ex financials). This implies 27% upside potential from the current share price. On this basis, the Buy rating on the company is maintained, but it is acknowledged that while this multiple is not demanding, there are several issues facing the company.
Issues
Pathology margins – it is expected that the market will continue to focus on the expansion of pathology margins as an indicator of management success. While all operators have had margin contraction in 1H02, Mayne still has the lowest margins of the peers.
Hospital growth – we are currently experiencing the best hospital operating conditions for at least five years. Despite this, the company only expects to make its WACC in hospitals by the end of CY02. Revenue growth is essential in expansion of margins. 7% revenue growth has been forecast in FY02 and FY03. The market is likely to closely watch this trend.
Faulding Healthcare and implications from the potential Sigma/ API merger. It expected that this merger will lead to more rational behaviour in the drug distribution industry. The outcome of the potential merger will not be known for some weeks; however, approval would be taken as positive by the market for MAY, it is thought.
Deployment of capital – the company currently has an ungeared balance sheet with capacity to debt fund around $2BN. In our view, the market appears unlikely to give the company any premium for this capacity and will likely wait for acquisitions before re-rating the stock for this potential.
April 9, 2002
The MAY price fell yesterday on a Bloomberg report that it would not proceed with the acquisition of 9 medical centres, over which it had an option, as part of the purchased agreement for 13 radiology practices from Endeavour healthcare.
A positive...
We see this as a positive, especially with operators experiencing difficulties in obtaining efficiency gains & economies of scale from chains of medical practices, as evidenced by foundation healthcare & MAY’s own medical centre division, which lost $1.9m in 1Hh of 02
-------------------------------------------------------------------------------- Mayne to look at expansion of Aust hospitals Source: AAP Published: Thursday April 11 2002, 4:15 PM
Mayne Group Ltd chief executive Peter Smedley today said the company intended to look for expansion both in Australia and overseas particularly in terms of its healthcare operations.
Mr Smedley said the company would more likely look at a brownfields approach in expanding its hospital presence in Australia in the medium term or over the next five years.
He said the last choice the company would be would a greenfield approach, that is building a new hospital from scratch.
The company currently has 58 hospitals around Australia.
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"We can can look at adding wards, or rooms to existing hospitals which is far (cheaper)," he said.
At 1505 AEST Mayne shares were up one cent at $5.11.
When asked if Mayne Group was looking for acquisitions in the United Kingdom or Canada, Mr Smedley said the company was looking at all opportunities.
"We operate now in the UK as a pharmaceutical distribution company, we're the largest provider of oncology drugs to hospitals in the UK," he said.
"We are a growing supplier in Canada of products into the same market."
He said the company's Mulgrave injectables plant, based on the in-licensing of injectable pharmaceutical products including anti-cancer drugs, was focused on winning more share in hospitals around the major continents.
When asked if Mayne was currently evaluating any acquisitions in Australia or in Asia, Mr Smedley would not comment directly.
"We operate in all those areas, and we've made it very clear that Asia is a stepped greenfield development for us - the way we see the investment profile there both in health and in transport," he said.
"We have progressively been increasing our presence in the logistics area in Malaysia, Thailand, Indonesia and we have a growing interest in Indonesia in our health-hospital area," he said.
Mr Smedley said there was increasingly strong demand for private health services in Australia, helped by the increased number of people with private health insurance.
At the end of 2001 around 45 per cent of Australians had private health cover, up from just over 30 per cent three years earlier.
"Going forward, we can expect to see demand for services to grow exponentially, reflecting the needs of an ageing population as well as technological advancements, in all branches of medicine," he said.
Mr Smedley said in Australia in terms of potential acquisitions, there were no real competition issues apparent.
"If you look at our purchase of AHC early last year, and the need to divest four key hospitals as part of that, the test was very much on the basis of localised competition - a postcode test if you will," he said.
"On the basis of national competition, there are a number of markets in which we are under-represented, and others where we aren't represented at all."
Mayne acquired private hospital operator Australian Hospital Care Ltd in 2001.
He noted Mayne did not operate in South Australia, the Northern Territory, and was under-represented in Western Australia and Queensland.
Mr Smedley said at present there were 44 health funds in Australia dealing with the private hospitals, with a period of consolidation to take place.
"Clearly there is opportunity for some streamlining of that process," he said.
"In the meantime, however, our approach with the funds has been to try and simplify the relationship - that is, to seek a consistent basis of payments across our national hospital network, and negotiate more stable relationships," he added.
Mr Smedley said there was a need for the Australian government to ensure legislation was supportive of continued research development investment in Australia by generic manufacturers to ensure the sector remained competitive internationally and domestically.
He said current Australian patent legislation has inbuilt disadvantages for local generic manufacturers
Becoming a substantial holder
MAYNE GROUP LIMITED 2002-05-10 ASX-SIGNAL-G
HOMEX - Melbourne
+++++++++++++++++++++++++ UBS Nominees Pty Ltd became a substantial shareholder in Mayne Group Limited on 22/03/2002 with a relevant interest in the issued share capital of 41,489,747 ordinary shares (5.124%).
SYB Price at posting:
0.0¢ Sentiment: None Disclosure: Not Held
