Acquisition set to hurt Life Healthcare earnings

Life Healthcare shareholders could expect lower earnings per share because of the purchase of Alliance Medical and one-off items related to investments in Poland, the group said in a trading statement on Wednesday.

Life Healthcare paid between R240m and R260m in the deal, resulting in a decrease in earnings per share and headline earnings per share of 22.7c to 24.6c. Interest will reduce the two line items by about 35.1c and 37c a share, respectively.

BPI Africa analyst Kate Turner-Smith said it looked scarier than it was, as one-off items represented the cost of growth.

The hospital group expected to raise about R9bn with a rights offer to shareholders. Life Healthcare strategy and investor relations executive Adam Pyle said it was too early to determine the degree of subscription to the offer, but 83% of shareholders voted in favour of the offer at its general meeting in January. Pyle said the group would use the funds to pay debt raised in 2016 to finance the acquisition of Alliance Medical.

The group expected Alliance Medical to increase revenue by between 5.5% and 6%, bringing growth to between 20% and 25%, from October 2016 to endMarch 2017.

The group’s share price fell 4.71%, to R26.10 after it released its statement on Wednesday.

Turner-Smith said the share price was expected to fall as the rights issue progressed, due to the dilution effect coupled with its negative outlook.