Healius tipped for raising as costs mount

Healius’ costs are mounting in the face of the COVID-19 pandemic. Picture: iStock

• BRIDGET CARTER

  DATAROOM EDITOR

  @BridgetCarterb

  
• 2 HOURS AGO MARCH 25, 2020
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Health Group Healius might be completing 2500 COVID-19 tests a day, but it is not enough to offset fewer GP attendances, the deferral of elective pathology work and a decline in the demand of non-essential radiology services, say analysts at Credit Suisse.

In a research note the analysts said they believed there was a possibility that the healthcare provider would raise equity as it remained at risk of breaching its debt covenants.

The note came after Healius, which recently rebuffed a $2.1bn takeover bid by Partners Group equating to $3.40 per share, told the market on Tuesday that its routine services had declined and it was experiencing increased consumable costs.

The company said while undertaking 2500 daily tests in its labs for COVID-19, it was reviewing non-critical activities to reduce its cost base.

Analysts at Credit Suisse foresee a 15 per cent decline in sales during the fourth quarter of the 2020 financial year, due to a strong deterioration in high-margin anatomical pathology.

This would be partially offset by above-historical growth in microbiology, basic chemistry and haematology.

READ MORE:Healius takeover bid mistimed|Healius to reject $2bn buy-up bid|BGH planned Healius bid before Partners offer

For medical centres, Healius was positioned to benefit from the newly Medicare-funded telehealth consultations, and analysts said that this should be able to mitigate some of the decline in routine volumes as a result.

While delivering its half year results, the company said net debt to earnings before interest, tax, depreciation and amortisation was 2.7 times, below its debt covenant level of 3.5 times.

“As we now forecast EBITDA declining 24 per cent in the 2020 financial year, we forecast Net Debt/EBTIDA expanding to 4.0x times in the 2020 financial year and 3.8 times in 2021.

They expect that no dividend will be paid until at least the end of June next year after previously paying out 60 per cent of its earnings.

The company has been proceeding with the sale of its medical centres, with first round bids due this week in a sale process run by UBS and Morgan Stanley.

“In our view, the potential divestment of the Healius Medical Centres business would give Healius the flexibility in its capital position,” the analysts said.

“However, given the uncertainty in the current environment, we think it is unlikely Healius will complete a transaction in the next six months, and as such would likely breach its covenants.

“Unless a medical centre sale is imminent, we believe there is a risk Healius would seek to raise equity.”

The analysts have lowered their price target to $2.47 from $3.35.