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HSO - Healthscope Limited

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peaceofmind

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lists on mon 28th july
Healthscope Ltd
Price $2.10 a share
$3.6bn market cap.
P/E 22X (RHC is 24X)
Yield 3.2%(FF from FY18)
EBIT growth rate 9%ish
NPAT growth rate low double digits.

small premium expected on listing, given demand and oversubscriptions. non cornerstone Fund managers scaled to 10-15% of their bid
 
Re: Healthscope IPO

I suspect this float will catch a few investors who feel they have missed the boat in this sector.
 
Re: Healthscope IPO

I'd have to agree galumay.

Not fully conversant with the deal so gladly be corrected but believe it's a private equity palm off with some over hang and timed just right to boot.
 
Re: Healthscope IPO

An employee, so had the opportunity to jump in via that route, but didn't seem quite right to me. Debt doesn't seem over the top (which is what I was expecting they would do as their MO once we were taken over), but the P/E ratio was a bit too high, potential to grow given government preference towards private healthcare at the moment.

Just didn't add up to enough for a huge day 1 jump on logic, so figured there's more time to evaluate.
 
Re: Healthscope IPO

Melthar said:
An employee, so had the opportunity to jump in via that route, but didn't seem quite right to me. Debt doesn't seem over the top (which is what I was expecting they would do as their MO once we were taken over), but the P/E ratio was a bit too high, potential to grow given government preference towards private healthcare at the moment.

Just didn't add up to enough for a huge day 1 jump on logic, so figured there's more time to evaluate.
Click to expand...

agreed. some nominal premium on the first days 5-10c is expected. a huge jump would be met by selling i imagine as it would be on par with rhc(which has a bit higher growth rate due to overseas acquisitions)

yield on HSO is a bit higher at 3.2%. RHC's yield is lower as is spending cash flow and debt on french deals.

debt wise HSO is superior. HSO is 2.4x leverage ratio, RHC is 3.0x ratio after latest france buy. HSO has more room to grow as is on a lower leverage ratio.

re- domestic side hospitals rhc and hso expected to grow at high single digits well into the future, with hso having a bit more upside as starting from a lower base and untapped development portfolio.
 
Re: Healthscope IPO

looks like domestic fund managers were caught very short, with terrible allocations of about 13% of what they applied. They will need to buy due to index inclusion, and i am revising my expectation from 5-10c to a 15-20c gain on opening day.
 
HEALTHSCOPE ORD (HSO) STRONG BUY

HEALTHSCOPE
Hello fellow traders, I honestly believe HEALTHSCOPE is going to be a very profitable share in the upcoming years ahead, I've been researching and watching the chart for a few weeks now and once it breaks resistance at 3.1415 it will progress up. Beginning in June 2014 at 2.100, HEALTHSCOPE has just had a continuous uptrend and if you look at the website they are starting to build more hospitals within MALAYSIA and NEW ZEALAND.
I spoke to my Broker as well and he also recommend going long above 3.14 even maybe 3.15 to be safe and
predicted HEALTHSCOPE will reach around 4.50 at the end of the year,

Thank-You and Good Luck with the trading
 
Im on the HSO here is why:

HSO is expanding to meet the demand
Australias population is ageing
the government is pushing for greater reliance on the private sector opposed to the public
Net profit has risen in the past 12 months which is always a good sign for a newly listed company.

on the negatives long term debt has increased however that is expected with building increased number of hospitals.

HSO could be a stock that in 3-5 years from now we wish we bought i've said it with a few companies i.e. RMD.
 
mmm...looks suspiciously like pumping from a couple of very low post members there!

Didnt look like an investment grade company the first time I looked and nothing has changed in my view since then.
 
galumay said:
mmm...looks suspiciously like pumping from a couple of very low post members there!

Didnt look like an investment grade company the first time I looked and nothing has changed in my view since then.
Click to expand...

mmmm what would you say is an investment grade Company?

(not trying to 'pump anything never said it was a buy just spoke the facts) but insight would be great?

Financial's look good to promising with potential growth huge i'd say risk level is moderate but at 26 years old im happy to a bit more risk?

Mainly because i used to own RMD a few years ago and sold them after a year or so, i've been regretting that decision everyday lol
 
dpgrubesic said:
mmmm what would you say is an investment grade Company?

(not trying to 'pump anything never said it was a buy just spoke the facts) but insight would be great?

Financial's look good to promising with potential growth huge i'd say risk level is moderate but at 26 years old im happy to a bit more risk?

Mainly because i used to own RMD a few years ago and sold them after a year or so, i've been regretting that decision everyday lol
Click to expand...

To start, something with a greater return on capital. At a glance, they seem to have made less than $200m on over $4bn in assets... And if they're investing to grow, that capital may also earn 6%. I'd imagine their interest payments alone are close to this.

The real ROC is probably a little more nuanced than that, so perhaps you know something I don't.
 
Klogg said:
The real ROC is probably a little more nuanced than that, so perhaps you know something I don't.
Click to expand...
It is higher if you adjust for the indefinite life intangibles like goodwill (there's about $1.8 billion there). I came up with about 13% when I ran a quick calculation on the latest report.

I don't think that gives you the true picture though.

Owners of the better private hospitals or medical centres get much higher incremental returns on capital when they add extra rooms or otherwise expand existing facilities. See Ramsay Healthcare (although the picture is still a bit distorted by acquisitions). Not sure if this applies to Healthscope because I don't know their competitive position well.

There's a whole raft of discussion that could be had. Most of the arguments made against Medibank when it had the IPO could easily be inverted and made against the big private hospital players in Australia. There's a fine pendulum swinging in regards to who foots the bill and how high the expenses (or revenue if you're HSO) are when it comes to health care.

There's also legislative risk to think about. How much revenue is the government effectively funding and at what rates?

Debt also has a risk. They've got a fair bit of leverage juicing the returns on the balance sheet. Is it susceptible to earnings risk?
 
Ves said:
It is higher if you adjust for the indefinite life intangibles like goodwill (there's about $1.8 billion there). I came up with about 13% when I ran a quick calculation on the latest report.

I don't think that gives you the true picture though.

Owners of the better private hospitals or medical centres get much higher incremental returns on capital when they add extra rooms or otherwise expand existing facilities. See Ramsay Healthcare (although the picture is still a bit distorted by acquisitions). Not sure if this applies to Healthscope because I don't know their competitive position well.

There's a whole raft of discussion that could be had. Most of the arguments made against Medibank when it had the IPO could easily be inverted and made against the big private hospital players in Australia. There's a fine pendulum swinging in regards to who foots the bill and how high the expenses (or revenue if you're HSO) are when it comes to health care.

There's also legislative risk to think about. How much revenue is the government effectively funding and at what rates?

Debt also has a risk. They've got a fair bit of leverage juicing the returns on the balance sheet. Is it susceptible to earnings risk?
Click to expand...

Yeah, I thought there was a bigger picture to it - I took the lazy way and took all of 10 seconds.

As you say though, ignoring the goodwill completely probably isn't accurate either. It would depend on how it got there in the first place.
 
Re: HEALTHSCOPE ORD (HSO) STRONG BUY

Moylal09 said:
HEALTHSCOPE
Hello fellow traders, I honestly believe HEALTHSCOPE is going to be a very profitable share in the upcoming years ahead, I've been researching and watching the chart for a few weeks now and once it breaks resistance at 3.1415 it will progress up. Beginning in June 2014 at 2.100, HEALTHSCOPE has just had a continuous uptrend and if you look at the website they are starting to build more hospitals within MALAYSIA and NEW ZEALAND.
I spoke to my Broker as well and he also recommend going long above 3.14 even maybe 3.15 to be safe and
predicted HEALTHSCOPE will reach around 4.50 at the end of the year,

Thank-You and Good Luck with the trading
Click to expand...

Appears there was a bit of ramping going on in this stock...always reason to be highly dubious. Poor update today has seen the stock smashed.
 
Re: HEALTHSCOPE ORD (HSO) STRONG BUY

Moylal09 said:
(2nd-April-2015)
I spoke to my Broker as well and he also recommend going long above 3.14 even maybe 3.15 to be safe and
predicted HEALTHSCOPE will reach around 4.50 at the end of the year.
Click to expand...

Floated at $2.10 and took 6 months to get to 3.10 only to spend the next 12 months drifting back down to 2.15, then back up to 3.17 then back down and back down to 2.38, pretty much back where we started.

Anyone know if Healthscope was gutted by PE before the float? like Inghams.
 
galumay said:
Didnt look like an investment grade company the first time I looked and nothing has changed in my view since then.
Click to expand...

I take some quiet satisfaction when my research and subsequent analysis turns out to be right. I also temper it with reflection on where I have been correct for the wrong reasons or just plain wrong! Overall its important to revisit the decisions where you choose not to invest, as well as reflecting on the ones where you took positions.
 
I could be wrong as well, but it seems the narrative isn't matched by the fundamentals.

HSO and RHC spend enormous CAPEX on property / building and return on capital is at about 10%.

That means for a 70% payout ratio, earnings growth would only be around 3%.

I'm not sure why they don't let property developers spend the $1b, I'm sure there's a good reason or they wouldn't do it.
 
After reading FY presentations since IPO I've used a model to estimate some figures as a result of HSO return on capital that I mentioned.

HSO has said that it's Growth Capital Expenditure aims for ROIC 15% EBITDA.

HSO will have spent approximately $1.3B on their project pipeline from 2015-2019 on new facilities able to operate in 'normal capacity' by 2022.

That HSO Model would indicate a return of $195m EBITDA on the $1.3B CAPEX.

Starting Point Organic EBITDA in 2015: $365m
+
Targetted Growth CAPEX EBITDA in 2022: $195m
=
'Pro-Forma' EBITDA in 5 years: $555m

Using a 40% EBITDA to NPAT Conversion Ratio would lead to a modelled NPAT of $222, which is +23% over current FY.

This NPAT growth if achieved by 2022 would equate to about 4% p.a.

At a 70% payout ratio with future dividends fully franked would lead to a dividend yield of 7% p.a.

HSO Statutory PE is currently 18 which if we targetted a -25% contraction would be bought for 13.5.

If we forecast a reversion back to PE 18 at some stage, it would equate to a valuation expansion of 30%, which spread over 5 years would equate to about 5% p.a.

5 year returns p.a:
Dividend = 7%
Earnings Growth = 4%
PE Expansion = 5%
= 16%

What is interesting is that current levels of Net Debt is not expected to increase based on the $1.3B Growth CAPEX as any future amounts will be offset by free cash flow and NSW government capital return.

So it could be said while this huge CAPEX amount is currently accounted for the ROIC will only be fully realised next decade.

The caveat to modelling all this is that Net Debt will still be high at about 3 x EBITDA so that
 
Last edited:
MrChow said:
I could be wrong as well, but it seems the narrative isn't matched by the fundamentals.

HSO and RHC spend enormous CAPEX on property / building and return on capital is at about 10%.

That means for a 70% payout ratio, earnings growth would only be around 3%.

I'm not sure why they don't let property developers spend the $1b, I'm sure there's a good reason or they wouldn't do it.
Click to expand...
who audits the relationship between the developers and contractors HSO are using to award the construction works ?
 
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