On Wednesday, Citi revised its stance on Healius Limited (HLS:AU) (OTC: PHCRF), upgrading the healthcare company from Sell to Neutral. The firm has adjusted its price target for Healius shares to AUD1.05, down from the previous target of AUD1.50. The adjustment follows Healius' Annual General Meeting (AGM) where the company provided an update on its financial outlook.
Healius indicated that its Pathology division's profitability for the first half of 2025 is expected to be "broadly in-line with" the first half of 2024, which recorded an EBIT of $4 million. This projection falls significantly short of the market consensus, which had anticipated a $25 million EBIT. Despite a 5.9% year-to-date revenue growth, the company attributed the modest profitability to investments aimed at growing revenue, including extended operating hours and increased staffing.
The company has managed to stabilize its market share loss over the last six months and remains optimistic about achieving high single-digit EBIT margins for its Pathology division in the medium term. Healius plans to provide more details at its Capital Markets Day in the first quarter of 2025. Citi forecasts that Healius will see a gradual improvement in its Pathology EBIT margins to mid-single digits by the fiscal year 2027.
Additionally, Citi anticipates a special dividend of $300 million, or 40 cents per share, stemming from the approximately $800 million net proceeds from the sale of Healius' Lumus division. The revised price target of AUD1.05 also factors in a $0.40 special dividend. The upgrade to a Neutral rating takes into account the recent decline in Healius' share price, the debt-eliminating sale of Lumus, and a Pathology cost base that Citi believes now more accurately reflects the business-as-usual expenses.
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