Healthscope has agreed to a $4.4bn takeover bid from Brookfield.
The formal offer on Friday would deliver Healthscopeinvestors $2.465 a share, plus the 3.5c interim dividend.
This has been one of our high conviction buy ideas expressed on the blog and in the “opportunities in review” webinars.
The XJO has formed a “lower high” pattern within the existing Algo Engine buy signal structure.
The market has rallied 6% from the recent buy signal but we’re now mindful of the recent break of the “higher low” structure, as circled on the chart below.
5941 is resistance for the XJO and whilst the market remains below this level, some caution is required.
Names that remain supported within today’s broad market sell off include, AGL, CTX, GPT, WES, SCG, TCL, HSO & WOW. We remain cautious on the banks and select resource names .
Last month Healthscope’s shares jumped as much as 22% to $2.17 on the news BGH Capital-AustralianSuper consortium will offer $2.36 cash per share as an indicative takeover price.
Since then, HSO shares have settled back at $2.05 – $2.10 and we feel value is now on offer and investors should look to accumulate the stock.
Healthscope runs 43 private hospitals across Australia and 24 pathology laboratories in New Zealand.
In May, Healthscope refused to open its books to a prior takeover offer, instead, saying they’ll look into the sale and lease back of its hospital assets.
Pressure is now mounting on the HSO board of Directors to engage and allow the acquiring entity access to the data rooms and due-diligence process.
NOTE: This morning a competing bid has been announced, Brookfield Capital has now Offered $245.5 per share.
Shares of HSO are up over 20% in early trade as the company received an unsolicited takeover offer from a group led by BGH Capital.
This is the second takeover bid proposed by BGH, whose first acquisition attempt was rejected by HSO’s board in May.
The details of the new offer are not clear, but it’s suggested to be in the $2.35 per share area.
Interestingly, the GBH consortium includes AustralianSuper, one of HSO’s largest shareholders.
Our ALGO engine triggered a buy signal for HSO at $2.10 on August 16th and we have suggested scaling in to long positions at lower levels.Healthscope.
With US interest rates pushing higher, low growth defensive names have been under recent selling pressure.
We’ve seen this reflected in other yield sensitive names, within the property and infrastructure sectors as examples.
With Healthscope likely to grow forward earnings at 5% and trading on a 3% yield, it’s hard to be excited about the short-term investment returns, however, we’re confident investors will be rewarded over the next 2 – 5 years with income plus capital growth.
Accumulate HSO near the $2.10 price level.
Healthscope has retested the $2.07 price gap and has seen strong buying support.
We see HSO as a good long-term value play with improving earnings over the next 2 – 5 years.
Shares of Healthscope tested the $2.10 support level last week.
With the company on track to increase earnings in FY19 & FY20, we see the sell-off as an opportunity to buy the stock before it pushes back through the recent $2.28 high.
Ramsay Healthcare reported FY18 results in-line with market consensus, however, the FY19 guidance was below expectations.
Underlying earnings increased 7% in FY18 and that growth rate is likely to slip to 4 – 5% in FY19. With the stock on a forward yield of 2.7% we see further downside risk to the share price in the short-term.
RHC is a high quality business and we’ll be watching for the next Algo Engine buy signal.
Material earnings benefits from new hospital projects are expected in the coming years; we see both Healthscope and Ramsay Healthcare as long-term value plays with a defensive yield.
Buy Healthscope today and remain patient for the entry condition into Ramsay.
FY18 results for HSO were below expectations, with underlying EBITDA falling 4.4% to A$376 million
Healthscope will establish an unlisted REIT holding hospital real estate on a lease back arrangement, HSO will retain 51% interest. The deal should help to unlock over $1 billion.
Funds will be used for capital management initiatives, repaying debt and funding future growth.
Healthscope goes ex-div 3.5c on the 6th September.
Healthscope report earnings on Tuesday and the market is looking for NPAT to increase to $170m. We’re expecting the FY19 outlook statement to support the share price.
Technically, HSO has now filled the price gap to $2.08