Healius: Pieces coming together - “a platform for growth”

About the author:

Dr Derek Jellinek
Author name:
By Dr Derek Jellinek
Job title:
Senior Analyst
Date posted:
31 August 2022, 8:30 AM
Sectors Covered:

  • Healius' (ASX:HLS) FY22 underlying results were broadly in line with expectations, with double-digit revenue growth and ongoing cost outs driving leverage and robust cash flow.
  • Not surprising, COVID testing underpinned the result, while Imaging and Day Hospitals went backwards on COVID-impacted elective surgery restrictions, lockdowns and increased costs.
  • While COVID uncertainty continues to limit quantitative guidance, we believe well managed costs, ongoing efficiencies and growth initiatives, and strong B/S, not to mention some continued level of COVID testing and an eventual rebound in demand from the backlog in diagnosis and surgery, lays the groundwork for solid growth.
  • We adjust our FY23-24 forecasts and roll forward valuation multiples, with our DCF/SOTP target price increasing to (login to view). Add maintained.


FY22 underlying results were broadly in line, with NPAT A$309m (+108%; consensus A$306m) on revenue up 22% to A$2,338m (consensus A$2,363m), underpinned by strong increases in Pathology. 

Operating income grew c85% to A$492m, with margins up 720bp to 21.1% (but - 16.5pt hoh), supported by the ongoing Sustainable Improvement Program (SIP) and well managed labour costs (% of revs: 40.7% vs 44.4%).

GOCF was strong (A$428m; +119%), with good EBITDA conversion >90%, supporting a final dividend (A$0.06, -12%; payout ratio 32%), and B/S flexible (ND/EBITDA 0.8x; interest cover 44x).

No FY23 guidance, “due to unpredictability of COVID-19 and timing of acceleration in underlying diagnostics”.


Pathology saw solid gains (EBIT +97%, A$498m) on strong COVID volumes (>13m tests to date), with non-COVID earnings down “marginally”, but more efficient (revenue/centre +11% on FY19) on growth in commercial and stable market share in bulk-billed services, and cost-outs supporting margins (+900bp, 26.4%).

Day Hospitals and Imaging were soft, negatively impacted by COVID-related elective surgery restrictions, lockdowns and higher costs, with revenue growth down 2-3% (A$49m; A$394m) and EBIT declining 38-41% (-A$41m; -A$38m).

COVID testing averaged 10-12k/working day in Jul-Aug, with management flagging a range of 7-14k/working day (10-20% off peak levels) into the “foreseeable future” as a long-term addition to regular testing.

While non-COVID testing progressively improved in Jul-Aug, commensurate with the waning Omicron wave, the business tends to move inversely to COVID, so with positivity rates currently at c12-15%, trading is likely to remain volatile, despite a growing backlog and catch-up in routine services. 

SIP remains on track, with A$30m (45% of annualised incremental EBIT phase II initiatives) delivered and targeting 300bp margin expansion exiting FY23.

Forecast and valuation update

We have adjusted FY23/24 forecasts on COVID testing and base business assumptions, with underlying profit -8%/+0.5%, respectively.

We roll forward valuation multiples, with our DCF/SOTP based price target increasing to (login to view).

Investment view

We believe HLS remains attractively valued and well placed, benefiting from continuance of COVID-19 PCR testing (at some level), ongoing efficiencies and cost outs, coupled with the inevitable rebound in demand in diagnosis and surgery.

Price catalysts

  • AGM 20 Oct-22; ex-dividend (7-Sept-22).
  • Dividend payable (21-Sept-22).


  • Lower-than-expected COVID testing.
  • More limited divisional growth.
  • Margin compression.
  • Lower gains from Agilex than forecast.
  • Less government funding.

Find out more

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Disclaimer: The information contained in this report is provided to you by Morgans Financial Limited as general advice only, and is made without consideration of an individual's relevant personal circumstances. Morgans Financial Limited ABN 49 010 669 726, its related bodies corporate, directors and officers, employees, authorised representatives and agents (“Morgans”) do not accept any liability for any loss or damage arising from or in connection with any action taken or not taken on the basis of information contained in this report, or for any errors or omissions contained within. It is recommended that any persons who wish to act upon this report consult with their Morgans investment adviser before doing so.

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