Healius Ltd Shares Drop After Mixed Outlook for Pathology Division

Highlights:

• Profitability Miss: Healius Ltd (ASX: HLS) shares dropped 16% after forecasting first-half FY25 pathology EBIT of just $4 million, missing the $25 million consensus.
• Lumus Sale & Special Dividend: Healius plans to sell its Lumus radiology business for $900 million and return most proceeds via a special dividend, potentially offering a 30% yield at current prices.
• Debt-Free Future: Following the sale, Healius is set to become debt-free for the first time in over a decade, flipping from a 4.1x net debt/EBITDA ratio to a net cash position.

Decline in Profitability Amid Growth

Healius Ltd (ASX: HLS) shares experienced a significant drop of 16% on Friday, 15 November, following the company’s announcement that pathology profitability for the first half of FY25 would be "broadly in-line" with the previous year’s performance. Despite a 5.9% revenue growth year-to-date, the company's results fell well below analysts’ expectations, with Healius forecasting an EBIT of just $4 million for the period, compared to the $25 million consensus estimate.

Strategic Shift with Lumus Sale

The company also revealed plans to sell its Lumus radiology business to Affinity Equity for approximately $900 million. The proceeds from this sale, after debt repayment, will be largely returned to shareholders as a special dividend. Citi analysts have projected a one-time special dividend of 40 cents per share, representing a 30% yield at the current price of $1.30, up from a previous 25% yield. However, this news comes at a time of subdued business performance, with Healius' growth trailing behind industry peers such as Sonic Healthcare and ACL.

Investment in Future Growth and Debt-Free Future

Healius emphasized that its low profitability is a result of strategic investments to grow revenue, including changes to staffing and extended hours. Despite a history of market share losses, the company has indicated that this trend has "stabilised in the last six months." Additionally, with the sale of Lumus, Healius is set to become debt-free for the first time in over a decade, flipping from a 4.1x net debt/EBITDA ratio to a net cash position.

At the time of writing, Healius shares continue to struggle, with analysts expressing caution about the company’s strategic direction. The average target price is $1.42, reflecting ongoing skepticism regarding its market share stabilization and potential challenges from the Lumus divestment.

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