Sonic Healthcare (SHL) Shares Update

Submitted by Craig Strzelecki on 15 February, 2007 - 12:05

Sonic Healthcare (SHL) has a new 12 month share price target of $16.54 (from $17.08) and the DCF is $15.79 from share analyst Citigroup Investment Sevices (CIR). . Sonic Healthcare bought out the outstanding minorities in CPL following the purchase of AEL (which has pathology operations in Texas and Louisiana. Minorities impact NPAT by $4.9m. AEL and CPL have overlapping pathology laboratories and collection centres in Texas. This will facilitate rationalisation between AEL and CPL, and reduce the 'free kick' to minorities of CPL if bought out between 2009 and 2012 as first planned. SHL paid US$300m plus an earn-out of $US20m for 82% of CPL in October 2005. A similar multiple on the outstanding 18% would have valued the minorities at $US70m. SHL has paid an extra $12.7m for the early buy-out, indicating a high level of confidence by the management that the cost savings which will result from the rationalization of the two businesses are significant. No estimate of these has been given. The dilutionary impact of 7.7m options, 4.6m issued in 1H2007, has increased their fully diluted shares on issue since the last note. A $2 per share price appreciation increases the dilutionary impact. They have used a cost of debt of 5.5%, removed minorities of $4.9m, and adjusted for the extra 4.17m shares on issue. Gearing of 70% is historically high, so a capital raising is a possibility. A High Court hearing in NZ is set for 12 February 2007. This will determine whether SHL is able to retender for a lost contract, worth $12m EBITA.

Sonic Healthcare Limited is listed on the Australian Stock Exchange (ASX) under stock code SHL. You can view their investor website here. SHL was listed on the ASX on 9 August, 1971. Find out the meaning of the recommendations in this primer. Sonic Healthcare provides pathology services. Dr Colin S Goldschmidt is the Managing Director of Sonic Healthcare and Barry Patterson the Chairman. Browse for other stockbroker recommendations. You can use Instalment Warrants to trade SHL. Check your charts and good luck with your share trading!

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