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Look beyond the panic selling: Healthscope is a great long-term story

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Look beyond the panic selling: Healthscope is a great long-term story

Last month, Healthscope (ASX:HSO) announced it had experienced slower-than-expected hospital revenue growth for the quarter.  The announcement prompted a wave of selling, with the share price falling around 30%.  Does this present a buying opportunity?  Given the metrics of the private hospital industry, we think so.


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Roger is the Founder and Chief Investment Officer of Montgomery Investment Management. Roger brings more than two decades of investment and financial market experience, knowledge and relationships to bear in his role as Chief Investment Officer. Prior to establishing Montgomery, Roger held positions at Ord Minnett Jardine Fleming, BT (Australia) Limited and Merill Lynch.


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This post was contributed by a representative of Montgomery Investment Management Pty Limited (AFSL No. 354564) and may contain general financial advice 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 advice from a financial advisor if necessary.


  1. Roger,
    Great article.
    I know this company & industry very well. My wife has been a Physio contractor at Healthscope & family are doctors.
    … i hope the Fund is buying more!!!! I am exceptionally happy my investment with your fund holds this stock.

  2. Hi Roger,

    Was curious about your opinion on the debt HSO currently has. If Interest rates make their way upwards, wouldn’t companies like HSO be in trouble?
    Thank for the article.

    • Healthscope are spending $700 million building a new hospital. $400 million will come back from the government to cover the completion of the public part of the hopspital. That cash can be used to reduce the debt. The current debt of $1.5bln can be seen in this context. We would expect significant debt reduction and growing revenues to be a positive development.

  3. Thanks for the great insight Roger, including your comments on HSO on Switzer. Following on from your response to Peter’s note, I understand that ROE is being diluted by the legacy intangibles, however isn’t it also true that:
    1. Adjusting metrics for Intangibles (ie writing off Intangibles against equity), makes debt-to-equity seem dangerously high
    2. RHC still delivers ~23% ROE with an even higher proportion of Intangibles.
    Related to point 1, I was also interested in (and couldn’t quite get my head around) HSO’s reporting of “net finance costs” where $18m of capitalised interest costs (~10% of NPAT) appear not to be expensed through P&L.

  4. Great article Roger. It is very hard to find quality analysis these days, let alone free of charge. If only more analysts were like Roger and the Montgomery team. Keep up the great work.

  5. Great article Roger. I am long term holding of HSO and a firm believer in their growth story. Healthcare is one of those expenses that people are prepared to pay top dollar for the best in the business. As you said its in a sweet spot with the ageing population.

  6. Hi Roger,
    Last 2 years ROE was only 6.7% and 8.3%, that figures are not justified even at current share price based on your method of your book, am I wrong?
    How is your future earning growth estimate?


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