# HSO - Healthscope Limited



## peaceofmind (24 July 2014)

lists on mon 28th july
Healthscope Ltd
Price $2.10 a share
$3.6bn market cap.
P/E 22X (RHC is 24X)
Yield 3.2%(FF from FY18)
EBIT growth rate 9%ish
NPAT growth rate low double digits.

small premium expected on listing, given demand and oversubscriptions. non cornerstone Fund managers scaled to 10-15% of their bid


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## galumay (24 July 2014)

*Re: Healthscope IPO*

I suspect this float will catch a few investors who feel they have missed the boat in this sector.


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## Craton (24 July 2014)

*Re: Healthscope IPO*

I'd have to agree galumay.

Not fully conversant with the deal so gladly be corrected but believe it's a private equity palm off with some over hang and timed just right to boot.


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## Melthar (24 July 2014)

*Re: Healthscope IPO*

An employee, so had the opportunity to jump in via that route, but didn't seem quite right to me.  Debt doesn't seem over the top (which is what I was expecting they would do as their MO once we were taken over), but the P/E ratio was a bit too high, potential to grow given government preference towards private healthcare at the moment.

Just didn't add up to enough for a huge day 1 jump on logic, so figured there's more time to evaluate.


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## peaceofmind (25 July 2014)

*Re: Healthscope IPO*



Melthar said:


> An employee, so had the opportunity to jump in via that route, but didn't seem quite right to me.  Debt doesn't seem over the top (which is what I was expecting they would do as their MO once we were taken over), but the P/E ratio was a bit too high, potential to grow given government preference towards private healthcare at the moment.
> 
> Just didn't add up to enough for a huge day 1 jump on logic, so figured there's more time to evaluate.




agreed. some nominal premium on the first days 5-10c is expected. a huge jump would be met by selling i imagine as it would be on par with rhc(which has a bit higher growth rate due to overseas acquisitions)

yield on HSO is a bit higher at 3.2%. RHC's yield is lower as is spending cash flow and debt on french deals. 

debt wise HSO is superior. HSO is 2.4x leverage ratio, RHC is 3.0x ratio after latest france buy. HSO has more room to grow as is on a lower leverage ratio.

re- domestic side hospitals rhc and hso expected to grow at high single digits well into the future, with hso having a bit more upside as starting from a lower base and untapped development portfolio.


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## peaceofmind (25 July 2014)

*Re: Healthscope IPO*

looks like domestic fund managers were caught very short, with terrible allocations of about 13% of what they applied. They will need to buy due to index inclusion, and i am revising my expectation from 5-10c to a 15-20c gain on opening day.


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## Moylal09 (2 April 2015)

*HEALTHSCOPE ORD (HSO) STRONG BUY*

*HEALTHSCOPE*
Hello fellow traders, I honestly believe HEALTHSCOPE is going to be a very profitable share in the upcoming years ahead, I've been researching and watching the chart for a few weeks now and once it breaks resistance at 3.1415 it will progress up. Beginning in June 2014 at 2.100, HEALTHSCOPE has just had a continuous uptrend and if you look at the website they are starting to build more hospitals within MALAYSIA and NEW ZEALAND. 
I spoke to my Broker as well and he also recommend going long above 3.14 even maybe 3.15 to be safe and
predicted HEALTHSCOPE will reach around 4.50 at the end of the year, 

Thank-You and Good Luck with the trading


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## dpgrubesic (5 October 2016)

Im on the HSO here is why: 

HSO is expanding to meet the demand
Australias population is ageing 
the government is pushing for greater reliance on the private sector opposed to the public 
Net profit has risen in the past 12 months which is always a good sign for a newly listed company. 

on the negatives long term debt has increased however that is expected with building increased number of hospitals. 

HSO could be a stock that in 3-5 years from now we wish we bought i've said it with a few companies i.e. RMD.


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## galumay (6 October 2016)

mmm...looks suspiciously like pumping from a couple of very low post members there! 

Didnt look like an investment grade company the first time I looked and nothing has changed in my view since then.


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## dpgrubesic (6 October 2016)

galumay said:


> mmm...looks suspiciously like pumping from a couple of very low post members there!
> 
> Didnt look like an investment grade company the first time I looked and nothing has changed in my view since then.




mmmm what would you say is an investment grade Company? 

(not trying to 'pump anything never said it was a buy just spoke the facts) but insight would be great? 

Financial's look good to promising with potential growth huge i'd say risk level is moderate but at 26 years old im happy to a bit more risk? 

Mainly because i used to own RMD a few years ago and sold them after a year or so, i've been regretting that decision everyday lol


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## Klogg (6 October 2016)

dpgrubesic said:


> mmmm what would you say is an investment grade Company?
> 
> (not trying to 'pump anything never said it was a buy just spoke the facts) but insight would be great?
> 
> ...




To start, something with a greater return on capital. At a glance, they seem to have made less than $200m on over $4bn in assets... And if they're investing to grow, that capital may also earn 6%. I'd imagine their interest payments alone are close to this.

The real ROC is probably a little more nuanced than that, so perhaps you know something I don't.


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## Ves (6 October 2016)

Klogg said:


> The real ROC is probably a little more nuanced than that, so perhaps you know something I don't.



It is higher if you adjust for the indefinite life intangibles like goodwill  (there's about $1.8 billion there).  I came up with about 13% when I ran a quick calculation on the latest report.  

I don't think that gives you the true picture though.

Owners of the better private hospitals or medical centres get much higher incremental returns on capital when they add extra rooms or otherwise expand existing facilities.  See Ramsay Healthcare  (although the picture is still a bit distorted by acquisitions).   Not sure if this applies to Healthscope because I don't know their competitive position well.

There's a whole raft of discussion that could be had.   Most of the arguments made against Medibank when it had the IPO could easily be inverted and made against the big private hospital players in Australia.  There's a fine pendulum swinging in regards to who foots the bill and how high the expenses (or revenue if you're HSO) are when it comes to health care.

There's also legislative risk to think about.  How much revenue is the government effectively funding and at what rates?

Debt also has a risk.   They've got a fair bit of leverage juicing the returns on the balance sheet.  Is it susceptible to earnings risk?


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## Klogg (6 October 2016)

Ves said:


> It is higher if you adjust for the indefinite life intangibles like goodwill  (there's about $1.8 billion there).  I came up with about 13% when I ran a quick calculation on the latest report.
> 
> I don't think that gives you the true picture though.
> 
> ...




Yeah, I thought there was a bigger picture to it - I took the lazy way and took all of 10 seconds.

As you say though, ignoring the goodwill completely probably isn't accurate either. It would depend on how it got there in the first place.


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## dpgrubesic (21 October 2016)

looks like i was wrong about this one


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## Porper (21 October 2016)

*Re: HEALTHSCOPE ORD (HSO) STRONG BUY*



Moylal09 said:


> *HEALTHSCOPE*
> Hello fellow traders, I honestly believe HEALTHSCOPE is going to be a very profitable share in the upcoming years ahead, I've been researching and watching the chart for a few weeks now and once it breaks resistance at 3.1415 it will progress up. Beginning in June 2014 at 2.100, HEALTHSCOPE has just had a continuous uptrend and if you look at the website they are starting to build more hospitals within MALAYSIA and NEW ZEALAND.
> I spoke to my Broker as well and he also recommend going long above 3.14 even maybe 3.15 to be safe and
> predicted HEALTHSCOPE will reach around 4.50 at the end of the year,
> ...




Appears there was a bit of ramping going on in this stock...always reason to be highly dubious. Poor update today has seen the stock smashed.


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## So_Cynical (22 October 2016)

*Re: HEALTHSCOPE ORD (HSO) STRONG BUY*



Moylal09 said:


> (2nd-April-2015)
> I spoke to my Broker as well and he also recommend going long above 3.14 even maybe 3.15 to be safe and
> predicted HEALTHSCOPE *will reach around 4.50 at the end of the year*.




Floated at $2.10 and took 6 months to get to 3.10 only to spend the next 12 months drifting back down to 2.15, then back up to 3.17 then back down and back down to 2.38, pretty much back where we started.

Anyone know if Healthscope was gutted by PE before the float? like Inghams.


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## galumay (22 October 2016)

galumay said:


> Didnt look like an investment grade company the first time I looked and nothing has changed in my view since then.




I take some quiet satisfaction when my research and subsequent analysis turns out to be right. I also temper it with reflection on where I have been correct for the wrong reasons or just plain wrong! Overall its important to revisit the decisions where you choose not to invest, as well as reflecting on the ones where you took positions.


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## MrChow (19 March 2017)

I could be wrong as well, but it seems the narrative isn't matched by the fundamentals.

HSO and RHC spend enormous CAPEX on property / building and return on capital is at about 10%.

That means for a 70% payout ratio, earnings growth would only be around 3%.

I'm not sure why they don't let property developers spend the $1b, I'm sure there's a good reason or they wouldn't do it.


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## MrChow (18 September 2017)

After reading FY presentations since IPO I've used a model to estimate some figures as a result of HSO  return on capital that I mentioned.

HSO has said that it's Growth Capital Expenditure aims for ROIC 15% EBITDA.

HSO will have spent approximately $1.3B on their project pipeline from 2015-2019 on new facilities able to operate in 'normal capacity' by 2022.

That HSO Model would indicate a return of $195m EBITDA on the $1.3B CAPEX.

Starting Point Organic EBITDA in 2015: $365m
+
Targetted Growth CAPEX EBITDA in 2022: $195m
=
'Pro-Forma' EBITDA in 5 years: $555m

Using a 40% EBITDA to NPAT Conversion Ratio would lead to a modelled NPAT of $222, which is +23% over current FY.

This NPAT growth if achieved by 2022 would equate to about 4% p.a.

At a 70% payout ratio with future dividends fully franked would lead to a dividend yield of 7% p.a.

HSO Statutory PE is currently 18 which if we targetted a -25% contraction would be bought for 13.5.

If we forecast a reversion back to PE 18 at some stage, it would equate to a valuation expansion of 30%, which spread over 5 years would equate to about 5% p.a.

5 year returns p.a:
Dividend = 7%
Earnings Growth = 4%
PE Expansion = 5%
= 16%

What is interesting is that current levels of Net Debt is not expected to increase based on the $1.3B Growth CAPEX as any future amounts will be offset by free cash flow and NSW government capital return.

So it could be said while this huge CAPEX amount is currently accounted for the ROIC will only be fully realised next decade.

The caveat to modelling all this is that Net Debt will still be high at about 3 x EBITDA so that


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## Miner (19 September 2017)

MrChow said:


> I could be wrong as well, but it seems the narrative isn't matched by the fundamentals.
> 
> HSO and RHC spend enormous CAPEX on property / building and return on capital is at about 10%.
> 
> ...



who audits the relationship between the developers and contractors HSO are using to award the construction works ?


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## barney (23 October 2018)

Healthscope … not my normal port of call …… What the ???


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## greggles (12 November 2018)

Healthscope Limited announced this morning that it has received a proposal from Brookfield Capital Partners Ltd, together with its affiliates and their managed funds to acquire 100% of Healthscope by way of an off-market takeover offer representing total value of $2.455 per share, and a simultaneous scheme of arrangement representing total value of $2.585 per share.

The Board of Healthscope consider the terms of the Brookfield Proposal to be attractive for shareholders and has decided to grant Brookfield exclusive due diligence for a limited period to facilitate a binding offer.

Sounds like a done deal to me. A better deal for those who bought in around 12 months ago but not so good for those who got on board prior to October 2016.


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## bigdog (18 March 2019)

*BGH Capital calls time on Healthscope ambitions*

It's pens down in the BGH Capital camp for Healthscope.

Street Talk understands the private equity manager told funding banks and advisers to stop work on the potential deal last week, almost one year after it kicked off Healthscope's auction with a $2.36 a share indicative proposal.

It is understood the decision to stop work comes after BGH Capital's dealmakers made what was described as one final concerted push for the hospital operator. Banks were told BGH "couldn't justify the price".

It means rival investment manager Brookfield - which made twin bids worth $2.50 via a scheme of arrangement or $2.40 via an off-market takeover - is unlikely to be bettered by the Australian buyout firm. Healthscope shares last traded at $2.45.

The question now is what it means for BGH Capital's arrangement with co-investors including AustralianSuper.

The consortium has a combined 19.13 per cent interest, which includes voting power of 16.43 per cent and another 2.7 per cent via an equity swap, wrapped up in a "co-operation and process agreement".

The agreement, first signed on April 26 and later extended, prevented Healthscope's largest shareholder AustralianSuper from being involved in a competing proposal or accepting another bid without the prior written consent of the other parties.

That agreement is due to expire on March 31. It is not known whether it will be extended.

How that block of shares will be voted in the proposed Brookfield scheme of arrangement is likely to go a long way to determining whether the $5.71 billion bid is successful.

Meanwhile, Brookfield is getting its financing in order after signing the three-headed takeover last month.

Brookfield's bid is to be funded with about $2 billion debt, $1.4 billion equity and a $2.5 billion property spin-off.

It is understood Brookfield's seven banks started syndicating the debt package a fortnight ago, when lenders from across the market called to a meeting at Bank of America Merrill Lynch.

BAML is one of seven underwriters in the debt deal and advised Brookfield on the offer. Other banks in the syndicate include JPMorgan and National Australia Bank - as previously reported by Street Talk - Barclays, MUFG, Sumitomo and Barclays.

Potential buyers were told Brookfield was seeking five-year money at about 400 basis points above the bank bill swap rate.

For BGH Capital, the decision to stop working on Healthscope comes as the firm is in late stage talks to acquire ASX-listed university pathways company Navitas.


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## System (12 June 2019)

On June 11th, 2019, Healthscope Limited (HSO) was removed from the ASX's Official List in accordance with Listing Rule 17.11, following implementation of the scheme of arrangement between HSO and its shareholders in connection with the acquisition of all the issued capital in HSO by ANZ Hospitals Pty Ltd, an entity controlled by Brookfield Business Partners, and its institutional partners.


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