Healius More Confident Its Cost-Out Initiatives Will Deliver Healthier Margins; FVE Increased 9%

Healius’ efforts to strip cost from its Australian pathology and imaging businesses are bearing fruit in early fiscal 2021. Year-to-date cost reductions under its cost-out program--referred to as its Sustainable Improvement Program, or SIP--have tracked ahead of management’s previously announced medium-term target and our expectations. With Healius more confident its SIP can sustainably improve operating margins for its pathology and imaging businesses, we increase our fair value estimate for the no-moat name by 9% to AUD 3.70 per share. An increase in corporate overheads and near-term capital expenditures--required to realise cost-out targets under the SIP--provide a partial offset to our valuation uplift. Healius shares screen as modestly overvalued, trading at a 6% premium to our revised fair value estimate.