##{"id":60096,"date":"2012-06-14T11:13:01","date_gmt":"2012-06-14T01:13:01","guid":{"rendered":"http:\/\/www.fnarena.com\/index.php\/2012\/06\/14\/primary-health-a-conviction-buy\/"},"modified":"2012-06-14T11:13:01","modified_gmt":"2012-06-14T01:13:01","slug":"primary-health-a-conviction-buy","status":"publish","type":"post","link":"https:\/\/staging.fnarena.com\/index.php\/2012\/06\/14\/primary-health-a-conviction-buy\/","title":{"rendered":"Primary Health A Conviction Buy"},"content":{"rendered":"

\n\t – Goldman Sachs adds Primary Health to Conviction List
\n\t – Broker sees value at current levels
\n\t – Positives should support share price upside<\/strong><\/p>\n

\n\tBy Chris Shaw<\/p>\n

\n\tThe Goldman Sachs Australia and New Zealand Conviction List represents what the broker sees as its best possibilities for generating return alpha. This is a risk adjusted measure of active investment returns, reflecting a stock's return which is stock-specific beyond that of the index return (the latter being called "beta").<\/p>\n

\n\tFollowing a review of the healthcare sector, Goldman Sachs has added Primary Health Care ((PRY)) to its conviction list, seeing attractive value at current levels following recent share price underperformance<\/span>.<\/p>\n

\n\tPositives with respect to Primary Health in the view of Goldman Sachs include recent stabilisation<\/span> of the group's debt levels post successful refinancing, as well as a solid outlook for pathology volumes and the industry structure in general as consolidation continues.<\/p>\n

\n\tGoldman Sachs also sees doctor churn in Primary's medical centres<\/span> as manageable in the near-term as many of Primary's doctors are locked up to contracts. The broker does acknowledge on a 2-3 year view there continue to be questions as to whether growth in cash flows for Primary will be limited by ongoing doctor churn, nevertheless.<\/p>\n

\n\tLooking out to FY13<\/span>, Goldman Sachs believes there is value in Primary Health at current levels. The broker's earnings per share forecasts suggest outcomes of 24.8c this year and 28.8c in FY13<\/span>. The latter suggests a price to free cash flow multiple next year of 11.7 times, which is a discount to both the ASX200<\/span> ex-Financials and Sonic Health Care ((SHL<\/span>)), which is Primary's closest peer.<\/p>\n

\n\tConsensus earnings estimates for Primary Health Care according to the FNArena<\/span> database stand at 23.2c in FY12<\/span> and 27c<\/span> in FY13<\/span>.<\/p>\n

\n\tOn a straight earnings multiple basis Primary also looks attractive, as Goldman Sachs's forecasts suggest a P\/E for FY13<\/span> of 9.8 times. Add in a fully franked yield of close to 4.0% in FY13<\/span> and the expectation is a 12-month total return of 20% based on a price target of $3.25.<\/p>\n

\n\tGoldman's target<\/span> is in-line with the consensus price target according to the FNArena<\/span> database of $3.26. Targets range from Macquarie at $2.60 to UBS at $3.65. Ratings range from Five Buy recommendations to two Hold ratings and one Sell.<\/p>\n

\n\tMacquarie has the Sell rating on Primary, which reflects concerns with respect to ongoing churn in the group's medical centres<\/span> division. In Macquarie's view this is enough of an issue to limit share price performance.<\/p>\n

\n\tThe Neutral calls of both Credit Suisse and JP Morgan are largely valuation based, while Buy ratings from the likes of Citi<\/span> reflect an expectation of good earnings growth in FY13<\/span> and upside potential relative to price targets.<\/p>\n

\n\tShares in Primary Health Care today are unchanged in a weaker overall market, the stock trading at $2.82 as at 10.50am. Over the past year the shares have ranged between $2.56 and $3.57, the current share price implying upside relative to the consensus price target in the FNArena<\/span> database of around 16%.<\/p>\n

\n\t $\"\"$ <\/p>\n

\n\tTechnical limitations<\/strong><\/p>\n

\n\tIf you are reading this story through a third party distribution channel and you cannot see charts included<\/span>, we apologise<\/span><\/span>, but technical limitations are to blame.<\/em><\/strong><\/p>\n

\n\tFind out why FNArena<\/span> subscribers like the service so much: "Your Feedback (Thank You)<\/a>" – Warning this story contains unashamedly positive feedback on the service provided.<\/em><\/p>\n","protected":false},"excerpt":{"rendered":"