The hospital sale MAY had to have... † The sale of six Mayne hospitals for $27.5m to Healthscope (HSP.AX) is the most prudent decision MAY have taken for some time - setting a more profitable base for the MAY hospital business. We estimate the EBITDA losses from these hospitals ~$15m.
† The sale and associated asset write-down of $23m comes a month later than expected (refer MAY.AX research note 13 November 2002) - we suspect MAY took longer to concede a lower price.
† MAY has ~$90m in asset write-downs and significant items for 1HFY03 - $53m relates to the remaining hospital portfolio.
† We upgrade earnings 4% for each of FY04 and FY05 on the back of the hospitals sale.
† We look to the underlying 1HFY03 result to identify some stability in the business. If this stability does become apparent, with the stock priced at more than a 30% discount to book value, we believe it would look cheap. Our recommendation remains 2M (In-line) in an Overweight Sector.
† Stock ratings are relative to team's coverage universe. We rate the Health Care Equipment & Services industry Overweight based on our view that the sector is largely non-cyclical, non-discretionary and priced on intellectual property invested rather than cash costs.
The above is an upgrade in Smith Barneys outlook for MAY.
The company has restructured its divisons and is looking very profitable with lower debt and a cleaner structure.
Its core health divison is set to soar.
I would look to a top price of $ 4.05 by end 2003
Singas
SYB Price at posting:
0.0¢ Sentiment: Buy Disclosure: Held
