Soft Volumes Weighing on Healius’ Near-Term Performance Are Unlikely to Continue

No-moat Healius reported underlying net profit after taxes of AUD 39 million for the first half of fiscal 2019, down 10% from the prior corresponding period. The weak performance reflected soft market conditions across all divisions, mostly driven by the benign winter flu season. However, we do not expect these conditions to continue and expect volumes to eventually revert toward the historical norm. The second half of fiscal 2019 should improve, as efficiency initiatives in pathology and imaging contribute an approximate AUD 10 million EBIT uplift. The board declared an interim fully franked dividend of AUD 3.8 cents per share, which represents an approximate 60% payout ratio that we believe can be sustained through the cycle.