Morningstar | Jangho Looks to Acquire Healius, But Indicative Offer Below our FVE
Given shares in no-moat-rated Healius have been depressed over recent months, Jangho's proposal to acquire the healthcare company for AUD 3.25 per share is convenient timing. The bid falls short of our fair value estimate of AUD 3.50, and could be a shrewd bit of business for the Chinese company if they manage to pull it off. While the bid of AUD 3.25 represents a 46% premium to the stock price on Dec. 31, 2018, the last trading day before the proposal was announced, it is still more than 7% short of our unchanged fair value estimate. Through its subsidiaries, the Jangho Group already holds 15.93% of Healius. However, the bid is highly conditional, not least of all requiring approval from the Foreign Investment Review Board. The Healius board is yet to complete an assessment of the proposal.We make no change to our fair value estimate, and continue to believe Healius offers more value as a standalone business. Last trading at AUD 2.75, shares in Healius remain undervalued. The firm's large-scale medical centres generate dependable earnings, and its pathology division in particular enjoys competitive advantages. Healius is leveraged to growing demand from Australia's ageing population, and increased government focus on preventative health should help drive demand in the pathology and radiography divisions. We believe the firm can grow operating income at a CAGR of more than 16% over the five years to fiscal 2023.
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