BULL POINTS:
■ Could be a bid target
■ Dividends to resume
BEAR POINTS:
■ Uncertainty over the future of NHS procurement
■ Threat of bigger rivals moving in
■ Pricing pressure on pharmacies
Healthcare property developer and landlord Assura has endured a wretched recession that led to huge write-downs in its property values and the sale of a troublesome medical services division to Virgin Healthcare. In any other context, the company might now be a recovery propsect. But the biggest reorganisation of the NHS since its foundation and uncertainty over how the service's procurement systems will work put a big dampener on the outlook for Assura.
IC TIP RATING | |
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Risk rating | High |
Timescale | Short-term |
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There are two main concerns. First, where will the majority of healthcare spending cuts fall? Second, will the reorganisation of NHS procurement hit spending on new treatment centres?
On the first question, Assura's bosses reckon most savings will be made in hospitals. This chimes with current healthcare doctrine that emphasises prevention and treatment by GPs in order to avoid an expensive hospital stay for patients. The second question is tougher. The future of procurement is uncertain as primary care trusts, the NHS bodies responsible for approving local development projects, are to be abolished. Many of their functions will be split between local health authorities and consortia of GPs. As yet there is little detail about who will be responsible for approving capital spending, or how services will be purchased. Some procurement could be centralised to save costs – inevitably in an organisation as vast as the NHS, some parts pay more than others for the same services – but the truth is no one really knows how the system will work until it is set up next year.
However, Assura seems to be positioning itself as an outsourced services provider. In June it said: "Our NHS team continues to see opportunities for investment in new NHS premises...and is increasingly seen as a provider of health planning services to primary care trusts." Such a change in emphasis could give Assura a route into a growing market, but it also pits it in competition with US giants such as United Health, which has had a toehold in the NHS since 2002 and has the scale to compete vigorously.
ORD PRICE: | 49p | MARKET VALUE: | £150m | |
TOUCH: | 49-50p | 12M HIGH: | 52p | LOW:32p |
DIVIDEND YIELD: | 4.0% | PE RATIO: | 14 | |
NET ASSET VALUE: | 47p | NET DEBT: | 157% |
Year to 31 Mar | Turnover (£m) | Pre-tax profit (£m) | Earnings per share (p) | Dividend per share (p) |
---|---|---|---|---|
2008 | 40.7 | 12.6 | 6.2 | 8.75 |
2009 | 47.6 | -99.7 | -38.8 | Nil |
2010 | 55.8 | 4.4 | 2.1 | Nil |
2011* | 63.2 | 12.1 | 6.2 | 2.00 |
% change | +13 | +176 | +73 | – |
NMS: 5,000 Matched Bargain Trading BETA: 0.1 * Investec forecasts |
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Additionally, the company has a pharmacy business, which produced profits last year of £3.9m from 26 wholly-owned pharmacies. However, in last month's first-half results Assura said that NHS price cuts had put margins under pressure and profitability would fall in the second half.
One possible benefit of Assura's low valuation is that the company could become a bid target, as has happened to some healthcare companies. Its share price is below its underlying net asset value of 61p. Despite the high ratio of debt to equity, finances aren't a problem and Assura is set to resume paying dividends this year.