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Healthscope's rise overshadowed by takeover offer

Lex Hall with AAP  |  15 Feb 2019Text size  Decrease  Increase  |  
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Investors may have a small window of opportunity to reduce holdings in Australia's second-largest private hospital operator Healthscope ahead of the finalised acquisition by Canadian asset manager Brookfield, says Morningstar.

Acting early could help Healthscope (ASX: HSO) shareholders minimise any losses while the $4.5 billion takeover proceeds, says Morningstar analyst Gareth James.

James was speaking after Healthscope, which has grappled with problems at its recently opened Northern Beaches Hospital in Sydney, reported a stellar final first-half profit, which nearly tripled on the sale of its Asian pathology business.

healthscope hospitals

Healthscope has been the subject of a bidding war since late last year

Healthscope has reported $236.6 million in interim profits, from $79.1 million the previous year. The company sold its pathology business in Singapore, Malaysia, and Vietnam for $166.9 million in August.

Stripping out the effect of the sale, revenue for the six months to 31 December rose 3 per cent and net profit fell 6.7 per cent to $66.9 million on increased depreciation and amortisation costs.

James described the result as "somewhat academic" considering the high probability of the Brookfield deal going ahead and that a trading update was provided only two weeks ago.

The company, which has been the subject of a bidding war between since last November, remains fairly valued - something investors may wish to consider, James says.

"The result was in line with our expectations and we have maintained our earnings forecasts and fair value estimate at Brookfield's Scheme of Arrangement offer price of $2.50 per share. At the current share price of $2.48, the shares are fairly valued," he says

"However, investors may prefer to sell on market rather than incurring the opportunity cost of waiting months for the acquisition to complete, particularly as the share price is only 1 per cent below offer price and we expect no higher offers to materialise."

Healthscope, ranked second behind Ramsay Health Care (ASX: RHC), will pay an interim dividend of 3.5 cents, fully franked, up from 3.2 cents unfranked last year.

Healthscope cited the October opening of its flagship hospital on the Northern Beaches as "complex" and "challenging" but that the project was ultimately on time, and on budget.

The public-private hospital came under scrutiny soon after it opened, with staff working up to 110 hours a week, junior doctors being responsible for up to 60 patients and a lack of supervision among concerns raised.

Healthscope reported a total revenue of $1.2 billion, offset by employment expenses, which rose $11.4 million from the year prior, following closure of its Geelong and Cotham hospitals in Victoria leaving about 400 people out of work.

Brookfield won the battle for the Healthscope by outbidding the Ben Gray-led BGH Capital, which formed a consortium with Healthscope’s largest shareholder, AustralianSuper, to make its move.

At 10.45am Sydney time, Healthscope shares were 0.1 cents lower, or 0.6 per cent, to $2.46.

. Lex Hall is content editor with Morningstar Australia

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