The Primary Health Care Limited (ASX: PRY) share price has sunk 13% to $3.38 in early trade after the medical centre operator posted a disappointing half-year result.
Here are the key takeaways:
- Revenue increased 1.8% on the prior corresponding period to $808.7 million.
- Underlying earnings before interest and tax fell 12.8% to $81.9 million.
- Underlying net profit after tax dropped 14.7% to $41.9 million.
- Earnings per share of 4 cents, down from 12 cents per share.
- Interim dividend of 4.8 cents per share, down from 5.6 cents.
The disappointing bottom line result was largely due to a huge drop in profit from Primary Health Care's Bulk Billing division. During the half Bulk Billing earnings before interest and tax (EBIT) fell a whopping 36% to $26.9 million.
According to management this was the result of its transition to new recruitment contracts, investments in healthcare practitioners and patient engagement initiatives. It also blamed the on-going Medicare rebate freeze.
The latter has been especially problematic for the company. Its ability to attract GPs to its bulk billing centres and grow Medicare Benefits Schedule (MBS) revenue has been impacted by the Medicare rebate freeze.
In order to tackle the decline the company is exploring options to mitigate revenue pressures with the introduction of non-MBS services.
Fortunately the company's Pathology and Imaging divisions performed far better. Pathology EBIT rose 1% to $51.3 million and despite revenue rising just 0.4% to $162.8 million, Imaging EBIT increased a whopping 58.9% to $14.3 million.
Its Imaging business benefited from portfolio rationalisation and operating cost programs which expanded its EBIT margin to 8.8%.
For the full-year management has forecast for underlying net profit after tax of between $92 million and $102 million, compared to $96.8 million in the prior corresponding period.
Should you buy the dip?
I would suggest investors avoid the company's shares even after their sharp drop today. To reach its full-year guidance Primary Health Care is going to have to deliver a vastly better second half.
At this stage I'm not overly convinced the company is capable of achieving this and believe the headwinds it is facing could prevent it from hitting even the low end of its guidance.
With this in mind, I would suggest investors look elsewhere in the healthcare industry at shares such as Ramsay Health Care Limited (ASX: RHC) or CSL Limited (ASX: CSL).
