ATO flags cash injection for Primary Healthcare

Primary Healthcare has been advised by the ATO that payments made for medical practices in FY10 are tax deductible, with cA$18m cash refund expected from this period. PRY has treated payments previously as capital expenses for tax purposes. PRY is also finalising applications for similar deductions for FY11-14 tax years, with estimated cash refund cA$112m. Looks like a nice cash injection for PRY. On our current projections, if the entire A$130m tax refund is used to pay down A$1,100m in net debt, we estimated an FY16 earnings uplift c4%. However, given PRY will be expanding its large-scale, multi-disciplinary medical centres, there is no detail regarding the specifics of the “flexible” arrangements with physicians and new CEO Peter Gregg has yet to provide any business update or colour on his go forward strategy, it is difficult to know future capital requirements and funding source(s). (PRY, Hold, Price Target A$5.21)