Easy come, Easy go
As we discussed in a blog post last month, pathology markets around the world are predominantly supported by government funding. This is a blessing and a curse for private operators, evidenced by Sonic Healthcare’s latest announcement.
In October 2014, Sonic Healthcare (ASX: SHL) was announced as the preferred proponent to provide laboratory services in Alberta, Canada. Like many Governments around the world, Alberta Health Services recognised that additional expertise and capacity were needed to handle the growing demand for lab services. This was the largest tender in Sonic’s history and was expected to contribute C$200m in revenue annually over a 15 year term.
Yet in a case of “easy come, easy go”, Alberta’s Health Minister has just ordered that no steps shall be taken to expand the level of laboratory services delivered by private entities at this time, and has launched a review of all lab services in the province.
This is a very good example of the risk inherent in companies that are dependent on a single funding source or are highly concentrated in terms of clients and contracts. (This risk was perhaps underappreciated by Alberta Health Services in their FAQ flyer promoting the initial agreement.)
Ben MacNevin is an Analyst with Montgomery Investment Management. To invest with Montgomery domestically and globally, find out more.
This post was contributed by a representative of Montgomery Investment Management Pty Limited (AFSL No. 354564). The principal purpose of this post is to provide factual information and not provide financial product advice. Additionally, the information provided is not intended to provide any recommendation or opinion about any financial product. Any commentary and statements of opinion however may contain general advice only that is prepared without taking into account your personal objectives, financial circumstances or needs. Because of this, before acting on any of the information provided, you should always consider its appropriateness in light of your personal objectives, financial circumstances and needs and should consider seeking independent advice from a financial advisor if necessary before making any decisions. This post specifically excludes personal advice.
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