Primary Health Care Limited (ASX: PRY) operates medical and pathology centres in Australia where medical practitioners, specialists and healthcare providers conduct their practices. The $2.4 billion company has 87 medical centres and 782 collection centres in all mainland states.
Steady upward revenue and earnings growth
Since 2003 NPAT has risen from $12.5 million to $152 million as it has expanded its network. Just in 2013, NPAT grew 28.7% from $118.9 million. Analysts' forecasts project earnings per share growth to be an average compound 15.2% annually for the next two years.
Net profit margins have been improving, rising from 7.9% in 2011 to 10.31%. Margins are returning towards the high teens it had before the GFC.
High debt to net earnings
The company has a large amount of long-term debt, $1.07 billion, and although its gross gearing is not incredibly high, it is more than five times its 2013 NPAT of $152 million. Acquiring medical facilities may require higher borrowings, but if it can whittle debt down while growing NPAT to over $200 million, then that concern would disappear.
Extensive network
It is number two in the pathology services industry, holding about 32% of the market, second to Sonic Healthcare Limited (ASX: SHL), which has about a 41% market share. In addition to its medical centres, it also sells and supports health related software products for practitioners in their centres.
Outlook
Population growth, government assistance in healthcare legislation and acquisitions of more medical centres will impact the rate of future growth. The company's strategy is more geared toward organic growth and improvement of performance from economies of scale.
Guidance for 2014 is for EBITDA to be in the range of $395 million to $410 million, resulting in EPS growth of 7% – 13%.
Foolish takeaway
For comparison, it would be good for investors to review Sonic Healthcare since it is the market leader. For a wider view of healthcare companies, you should be familiar with Fisher and Paykel Healthcare Corp (ASX: FPH), Ansell Limited (ASX: ANN) and Cochlear Limited (ASX: COH).
