Following first quarter results, some brokers anticipate rising margins for
-First quarter revenues for
-Brokers upbeat on an Australian recovery, offshore concerns persist
-Management notes improvement across all geographies
-Goldman Sachs feels margins have bottomed
-Average target price falls
By
The share price of private hospital operator
In the wake of last week's first quarter results, the share price received a minor fillip after some brokers became more optimistic about the domestic business, though concerns remain for the European operations.
The company operates hospitals and day surgery centres, along with treatment facilities, rehabilitation and psychiatric units and a nursing college across
The Australian business contributes around 41% of revenue, while Continental Europe and the
Management noted improvement across all geographies as covid cases decline, with the company well positioned for volume growth over the medium-to-long term.
Revenues increased by 6.7% year-on-year to
Goldman Sachs believes a recovery is finally on the way with covid-related disruptions and costs appearing to abate and believes the -113bps fall in margin to 5% will represent a nadir. Any margin improvement from here is expected to reintroduce some earnings leverage back into the business.
Profit of
Morgans notes activity is gradually improving and there is an ever-increasing surgical backlog, which should add uplift to forecasts. This greater activity and lower costs are thought to indicate improving momentum. Covid costs are down to less than -
However, Morgans also points out costs associated with covid, staff shortages, cancellations, and other inflationary pressures are expected to prevent margins returning to pre-covid levels over the near-to-medium term.
Citi agrees with Goldman Sachs the post-covid recovery is underway in Australia, based upon a pick-up in activity during September and October. Surgical admissions per workday rose by more than 10% compared to FY20, while non-surgical increased by 4%.
According to this broker, a recovery in higher-margin non-surgical admissions should result in margin expansion over time.
Staff absenteeism and turnover declined materially in
The activity level also continues to improve in the
Citi analyst finds it difficult to draw any conclusions on
Movements in ratings and average target price
While Wilsons acknowledges a first quarter earnings miss, exit run-rates for volumes and mix were supportive of revenue forecasts and the broker's rating rises to Overweight from Market Weight. The diminishing impact of covid-related costs were also mentioned.
On the flipside, Citi downgrades to Neutral from Buy due to not only lower EPS forecasts but also after factoring-in less near-term likelihood for a large-scale sale and leaseback transaction. This view comes as management dismissed recent press reports about a potential divestment of
Goldman Sachs highlights first quarter earnings for Sante fell by -73% year-on-year, which underlines the distortive impact of previously higher government support measures during covid.
There are six covering brokers in the FNArena database with three Buy (or equivalent) ratings, two Neutral and one Underweight rating.
Following first quarter results, the average target price has fallen to
Outside of the database, the average target price of the Overweight-rated Jarden and Wilsons, along with Goldman Sachs (Neutral), falls to
Outlook
Neutral-rated Credit Suisse believes the company has limited deleveraging options outside of improved earnings performance, which may restrict the execution of its brownfield investments. It's felt any significant sale and leaseback is unlikely in the current macro environment.
This view holds, even if further covid headwinds emerge. The Australian media is reporting a 'fourth wave' with covid cases rising sharply in most states. While this is a threat, Ord Minnett remains confident
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