HSO is in talks with PE to sell its pathology business

Scott Power


Healthscope (HSO, Add, Price Target A$3.22) - Speculation in Street Talk this morning suggests HSO is in talks with PE to sell its pathology business and may consider opening up a data room to increase competitive bidding for the asset. As the pathology division has had its fair share of ups-n-downs (FY11-14A EBITDA CAGR 5%; FY14-17E EBITDA CAGR 7.5%) and we believe is viewed as non-core (c20% of total earnings; 13% international pathology; 6% domestic pathology), the possibility of jettisoning the business (we estimate a A$700m+ sale price) is likely to be viewed positively by the market and would provide fodder for a re-rate closer to pure-play hospital peer Ramsay Health Care (RHC; Fwd PE 28.5x vs HSO PE 25.5x). We view recent share weakness (last 3mos -6% vs RHC +4% vs ASX200 -4%) and >10% PE differential to RHC as unjustified and a great buying opportunity.

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Scott Power
Scott Power
Senior Analyst

Senior Analyst at Morgans covering healthcare, life science, telecommunications, technology and media. I've spent the last twenty years investing in and researching emerging companies and have developed a wide network of contacts across these...


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