Healthscope (HSP) Recommendation by MRE

Submitted by Craig Strzelecki on 17 January, 2006 - 09:20

Is this an opportunity? The way I look at it is that this opportunity has a medium risk to it - you need to track this one of you want to participate. Their 12 month price target is $6.55 which is an upside of almost 50% above yesterday's closing price...

"The second largest private hospital group in Australia plunged to an 8 month low of $4.38 after announcing that weak pathology earnings in NSW and Victoria would result in the company’s human pathology earnings falling below that forecast in their December 2004 prospectus."

"The greatest impact of the earnings update was the steep reduction in earnings certainty. Issues in the pathology business (and indeed the broader pathology industry) are nothing new, but the mere possibility of a $20m hole in expected EBIT has understandably driven market confidence to a new low. Whilst very unlikely in MRE’s view, such a possibility has been difficult to rule out from a market perspective owing to the existing spread in consensus forecasts and the blackout on further downgrade detail until the 1H06 result on February 22.

What also remains unclear is the impact of Individually significant items (ISIs) on the 1H06 result. The guidance given in the update is for reported NPAT, despite the existence of a number of non-recurring items likely to be taken below the line. Offsetting one-off costs related to the Affinity acquisition is the potential for the profit on sale of the Amdel business. With the IFRS-adjusted carrying value of Amdel not finalised prior to the sale, we have now assumed no net ISIs to remove yet another unknown from an already uncertain picture."

From a chartist's perspective is take this news - forget about it, look at the chart and make your own mind up about it. Take it or leave it.