This was published 3 years ago
Analysts tip more ills for Primary Health Care as Jhango rumoured to stalk the company
Analysts are tipping more financial ills for Primary Health Care but there could be a glimmer of hope with some predicting a potential takeover of the $2 billion company.
The predictions come after Primary said last week it expected to book a swingeing $575 million writedown and its full-year profit would come in at the bottom end of its guidance.
Primary Health Care's new doctor contracts are creating some financial headwinds for the company. Credit:Jim Rice
Primary said the writedown and lowering of the guidance range was the result of the goodwill in the company's medical centres division and underperforming sites, including those sites it purchased through its acquisition of Symbion in 2008.
The expected non-cash writedown is the result of Primary's project to turn around its medical centre performance where growth has been lower than hoped in recent years by improving doctor contracts and bringing new GPs into its system.
Malcolm Parmenter will take over as chief executive officer at Primary in September.Credit:Angela Brkic
It comes just months after Primary chief executive officer Peter Gregg stepped down to fight criminal charges relating to allegations of falsifying documents while he was a senior executive of Leighton Holdings, now known as CIMIC. Primary chief financial officer Malcolm Ashcroft is acting as CEO until new boss Malcolm Parmenter arrives in September.
Citi analysts, led by Victor Windeyer, said Primary was expected to continue to face challenges improving its medical centre business through new doctor contracts.
"We remain sceptical of the "one-off" nature of at least a portion of the restructuring and transformation costs reported by Primary," Mr Windeyer said.
He said Citi was expecting ongoing structural issues in Primary's medical centre division would see the company's full-year profit to come in at $97 million, well below the $106 million the market is tipping.
Former Primary Health Care chief executive Peter Gregg.Credit:Daniel Munoz
"The weakening operating performance is juxtaposed with [an] elevated risk of corporate action given Jhango's presence on [the] register increasing volatility and risk," Mr Windeyer said.
China's Jhango Group holds a little more than 10 per cent of Primary and has been rumoured to be looking at buying out the group. Others in the market theorise that Jhango has simply made a strategic investment in Primary and no takeover will ensue.
Mr Windeyer said the change of Primary's compensation model for general practitioners was "creating revenue and margin headwinds".
Mr Windeyer said a range of factors were creating the headwinds, including a greater proportion of billings being paid to GPs. The lower billings and hours meant more GPs were required to replace those doctors under the old compensation model and there were continued challenges in recruiting them. The GP fee indexation freeze imposed by the government since 2013 and longer patient waiting times, caused by the GP shortage, affecting patient returns and volumes, would also cause problems for the company, he said.
Credit Suisse analyst Saul Hadassin said the turnaround of Primary's medical centre division was slow.
"While GP recruitment appears to have improved in the second half of 2017 (circa 90 vs 61 in first half of 2017) we note this may not accurately reflect the increase on a full-time equivalent basis," Mr Hadassin said
"And while the shift to more flexible contracts may have facilitated this uplift, it seems to be coming at a significant price (ie via the need to offer a higher share of gross billings)."
But other analysts were more upbeat about Primary's future.
UBS analyst Andrew Goodsall said the impairment was "part expected" and that GP recruitment had improved ahead of the arrival of the new chief executive, in what it dubbed the "Dr Parmenter effect".
"Improved fourth quarter momentum can be largely attributed to more attractive doctor contracts and UBS suggests the impending arrival of new CEO Dr Malcolm Parmenter may have helped 'close' sign-ons,"
"Our channel checks continue to indicate that Dr Parmenter is considered a strong clinical leader who will contribute to repositioning of the Primary brand," Mr Goodsall said.
Primary's shares closed at $3.57 on Wednesday.