The Primary Health Care Limited (ASX:PRY) share price rose 5% to $3.72 this morning after the company released decent first half results – its first good result in a while. Here's what you need to know:
- Revenues grew 6% to $856 million
- Underlying net profit after tax (NPAT) grew 5% to $44 million
- Statutory NPAT up 5% to $22 million (includes restructuring costs)
- Free cash flow almost doubled to $46 million
- Net debt reduced by $14 million to $770 million
- Earnings per share of 4.2 cents
- Dividends of 5.1 cents per share (paid out $30m, or 66% of free cash flow)
- Underlying NPAT guidance of $92 million to $97 million for the full year
- Outlook for continued pressure on funding
So what?
It was the first solid improvement for Primary in a while, with revenues, earnings, and cash flows all moving in the right direction. The company experienced $17 million in restructuring costs associated with redundancies, as well as investment in IT systems and other support systems in finance, property, and HR.
Earnings grew due to favourable pricing pressures as well as the opening of several new centres. Cash flow picked up strongly, however a significant contributor to this was lower capital expenditure. Given that Primary may have to invest further in its business in the future, it's hard to say if current free cash flows are sustainable.
Now what?
Despite the green shoots showing, Primary continues to sail pretty close to the wind in terms of its debt burden. Despite a reduction in dividend payments this half, company net debt barely moved and remains elevated at $770 million. This reflects a 'gearing ratio' of 2.52x, below the limit of 3.5x but still quite high for a struggling company.
Surprisingly, Primary continues to trade at around 20x full year underlying earnings, perhaps due to the market recognising the potential for cost reductions or further earnings growth. Even so I don't think the company is stand-out value, and I'm not a buyer today.
