Ferret's Stock to Watch: PRIMARY HEALTH CARE

MAJOR INTEGRATION SAVES $13M WHILE COMBINED PROFIT ON TARGET

Sydney - Monday - April 6: (RWE Aust Business News)

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OVERVIEW

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Ferret by chance was taking in the sun and waves at the weekend

when he bumped into a local surfer who asked how the stock market was

travelling.

The grizzled Ferret declared that last week was the fourth week

in a row that the market had improved.

But he warned that the bears were still lurking around and that

many sectors were going to feel the chill winds of recession and

corporate profit slides.

Ferret was surprised that the local lad had picked a solid

performer in the health care sector called Primary Health Care Ltd

(ASX:PRY) and had enquired about its progress.

The point being that demand for pathology, medical centres,

radiology and health technology are unlikely to fall despite the economic

climate.

In addition, Primary Health Care merged with Symbion during 2008

and recently reported an excellent half-yearly result, indicating the

strategy of bringing the two companies together had worked well.

Directors said management's focus continued to be on the

integration of Symbion's medical centre, pathology and imaging activities

whilst maintaining the organic growth of the Primary medical centre

business.

The combined group is on track to realise $95-$105 million of

synergies by the end of FY2010 and meet its target of 50 large-scale

medical centres by December 31.

During the period Primary completed the sale of the Symbion

Consumer and Symbion Pharmacy businesses (C&P), with cash proceeds of

$765 million applied to the reduction of debt during the period.

Primary has taken up its option to roll its $1.538 billion

syndicated debt facility until February 2010.

Key features of the half year were:

* Total operating EBITDA of $155 million, up from $59 million in

the prior period;

* Margin improvement in all divisions on a like-for-like basis;

* Underlying organic EBITDA growth of 14 per cent from the

existing Primary large scale medical centre business;

* Successful integration of New South Wales pathology

laboratories;

* Successful sale of C&P businesses and significant reduction of

total debt; and

* Symbion integration on track and expected synergies in line

with expectations.

Meanwhile, Primary has continued to roll out its large scale

medical centres, with 43 of these centres now operational.

EBITDA margin was 53.8 per cent compared to 60.7 per cent for the

prior year Primary stand-alone business.

The decrease is expected and reflects the acquisition of the

lower-margin Symbion medical centres in March.

On a stand-alone basis the large scale Primary medical centres

increased margin from 60.7 per cent to 61.4 per cent while the Symbion

centres achieved an EBITDA margin of 35.6 per cent, a very significant

increase in their historical performance prior to acquisition by Primary.

Primary large scale centres continued to show strong organic

EBITDA growth of 14 per cent over prior period and GP patient growth of

11 per cent in the period.

Integration of the Symbion medical centre business is progressing

well and is ahead of expectations.

A total of 14 Symbion centres have been merged into the Primary

operations.

Doctor retention from these merged Symbion sites remains strong

at approximately 70 per cent of GPs.

Symbion state office operations have been closed.

Operational improvements and efficiencies have been quickly made

with the introduction of Primary's system of medical centre controls and

procedures.

The backfilling and upgrading of certain Symbion sites is now

underway.

The supply of suitable medical centre sites is growing.

Merger of the NSW-based SDS and Laverty pathology laboratories

successfully occurred in the period.

Related synergies are now expected to flow in the second half of

the financial year following this merger and the renegotiation of many

reagents and consumables contracts.

Respective operations had already been successfully merged in

each of Queensland, Victoria and the ACT.

The further automation of the laboratories in Queensland (QML)

and Western Australia (Western Diagnostic) is now a focus for the second

half of the financial year.

During the six-month period EBITDA margin was 17.25 per cent and

has shown an increase of 0.7 per cent from 16.55 per cent by comparison

to the combined Symbion and Primary operations.

Revenue growth for the period for the combined operations was 2.3

per cent.

The growth was satisfactory during a period of transition and

integration for the pathology operations.

On the imaging division, the company reported revenue of $162.2

million and EBITDA of $26.6 million.

After allowing for closed sites, revenues were stable for the

combined Primary and Symbion revenues compared to prior period.

The retention of revenue is satisfactory in a time of significant

change within the imaging division.

EBITDA margins of the combined business have shown a modest

improvement from 16.1 per cent to 16.4 per cent compared to the combined

operations for prior period.

The imaging business specifically is undergoing significant

structural change with a real reduction in workforce numbers occurring

and the introduction of productivity incentive schemes for staff.

In health technology, EBITDA grew by 22 per cent to $6.9 million

reflecting growth in the core Medical Director and other software

products in particular.

Hospital applications and sponsorship EBITDA contributions were

steady in a more challenging environment for those particular products.

Underlying EBITDA margins were firm overall at 30.9 per cent.

SHARE PRICE MOVEMENTS

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Shares of Primary Health Care on Friday rose 7c to $4.74. Rolling

high for the year is $6.63 and low $3.46. Dividend is 12c to yield 2.53

per cent. Earnings per share was a negative 10.14c and the price/earnings

ratio was 46.75. The company has 377.2 million shares on issue with a

market cap of $1.7 billion.

Primary announced that it had completed the sale of Symbion

Pharmacy to Zuellig Australia Pharmacy Services Pty Ltd on October 31.

The net cash proceeds of about $203 million1 have been applied to

reduce the debt facilities established in connection with Primary's

acquisition of Symbion Health Ltd in February 2008.

Tranche B of the Primary Group debt facilities totalling $220

million has now been fully repaid.

Primary's financial adviser is Caliburn Partnership and its legal

adviser is Mallesons Stephen Jaques.

BACKGROUND

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Primary Health Care joined the ASX list on July 3, 1998 and is a

service provider to a wide range of health care professionals which

provide comprehensive care to patients.

The company is a leading medical centre operator in Australia

with operations in all states and territories (with the exception of

Tasmania and the Northern Territory).

Over six million general practitioner consultants per year will

take place in its medical centres.

Additionally, Primary operates licensed and accredited day

surgery facilities, specialist eye clinics and automated pathology

laboratories.

The company claims it is the largest domestic pathology provider.

It has 87 medical centres, 87 pathology labs and 782 collection

centres.

It has a leading presence in the pathology industry with a

presence in all mainland states and the largest pathology business in

Australia (based on number of collection centres).

About 11.5 million pathology episodes per year will be conducted

by the company.

Primary is Australia's second-largest diagnostic imaging network

(by revenue) with a total of 161 diagnostic imaging sites in NSW, the

ACT, Victoria, South Australia and Queensland.

About 2.5 million examinations per year will be conducted.

Primary is also the leading provider of clinical and practice

management software for Australian general practitioners and specialists.

Over 16,000 general practitioners and specialists use Primary's

"Medical Director" clinical software, and 3,500 medical practices use

Primary's practice management software.

Over 80 per cent of Australia's major hospitals use Primary's

online content and information resource tools.

Earnings composition is pathology 47 per cent, medical centres 28

per cent, radiology 19 per cent and health technology 6 per cent.

PRY - Always good for a new appendix.

Nice and green today on what was essentially the Red Sea. And just a little bit of director appendix transplanting action recently too:

Appendix 3Y - Change of Director`s Interest Notice

11-05-2009

Appendix 3Y - Change of Director`s Interest Notice

29-04-2009

Appendix 3Y - Change of Director`s Interest Notice

22-04-2009

Appendix 3Y - Change of Director`s Interest Notice

20-04-2009

Appendix 3Y - Change of Director`s Interest Notice

08-04-2009

Appendix 3Y - Change of Director`s Interest Notice

02-04-2009

Appendix 3Y - Change of Director`s Interest Notice

27-03-2009

Appendix 3Y - Change of Director`s Interest Notice

20-03-2009

Appendix 3Y - Change of Director`s Interest Notice

20-03-2009

Appendix 3Y - Change of Director`s Interest Notice

13-03-2009.......

they are all selling though, aren't they?

sounds like they might just burst.

then they might have to rename themselves to Secondary Health Care.

There is some trading there, but essentially there has been accumulation for some time.

My $3.70 entry is looking healthy (for now).

Absolutely pumping now. Heart beat is strong. Systolic pressure good. :wink:

Last Analyst Update: 2 June, 2009

Strong Buy 4

Moderate Buy 7

Hold 5

Moderate Sell

Strong Sell

Contributing Analysts:

SHAW STOCKBROKING LTD

GOLDMAN SACHS JB WERE

J.P.MORGAN

MORGAN STANLEY

COMMONWEALTH EQUITIES RESEARCH

UBS

DEUTSCHE BANK SECURITIES

BAS-ML INTL

BBY LTD.

E.L. & C. BAILLIEU STOCKBROKING LTD.

MACQUARIE RESEARCH EQUITIES

CREDIT SUISSE - AUSTRALIA

CITI

ABN AMRO

AUSTOCK LIMITED

LINWAR SECURITIES PTY LTD

Tuesday 5pm. The recent institutional offer was oversubscribed, so PRY snaffled the excess as well. But with the share price slipping, seems they have tempered their enthusiasm. For the last five days, trades have opened lower with volume rising at each close without an associated significant price increase.

Debt still around $1b on EBITDA of $350m for profit of $12m. Bateman has unloaded 4m of his 50m holding since December.

The usual market commentators, for what their worth, have given it the thumbs up. I buy the long term picture, but what's missing is the govt looking to cut costs by further regulations on health care. No doubt that would be a vote winner.

From a medium term perspective, I'll pass on looking to stag this SPP and wait to see what happens over the next few months as we see a correction before or at the US reporting season.

I agree. I didnt subscribe either. Figured I can bag more cheaper at the end of the year. :)

Oops. Missed out on that but there's been plenty of others. I'll be running out of readies soon. Anxious time to be a bear with a sore head.

The directors report doesn't inspire confidence but the SP doesn't care. A few things caught my interest.

p5 reduced medicare rebates.

p26 there are reasonable grounds to believe that the Company will be able to pay it's debts. (Maybe this is just accountancy parlance).

p29 Net Assets 2009 2.07b, 2008 1.8b

p46 and p48

checking option exercise dates against prices it seems the smaller volume prices are high whereas the conversion prices for the larger option allocations are very very low. Directors get to cash options in the black even if the share price dives. That doesn't inspire me but I hope the sp continues to rise as I am losing faith in governance and will be glad to exit and look to better stocks with better growth potential as long term holds.