Good morning,

Healius is in the dog house.

Equity analysts from Jarden’s Steve Wheen to Jefferies’ David Stanton slashed price targets for the pathology name following a shock earnings downgrade and deeply discounted equity raise to repay debt.

How shocking? Wheen noted that just 2½ months have passed since Healius issued its FY24 guidance that second-half EBIT was a good base to annualise … despite this, management said FY24 EBIT would be about 20 per cent less than consensus analyst forecast on Monday.

Jarden, meanwhile, slashed its price target 39 per cent to $1.52 and Jefferies downgraded by 35 per cent to $1.20.

There doesn’t appear to be a lot of trust in management’s current forecasts, with Wheen describing its expected revenue rebound in the second half of 2024 as “unnerving” and “precariously reliant on poorly defined revenue and efficiency initiatives”. Stanton is similarly sceptical, saying: “It’s hard to see how this level of profit turnaround can occur…”

On the capital raise, Wheen was less than thrilled, laying out a messy history of capital management. He notes that Healius was in an “enviable position” coming out of the pandemic to reset its balance sheet. Instead, he said it “undertook an aggressive spending plan”, including acquiring Agilex, buying back stock and increasing dividends. Agilex hasn’t exactly been a win (so far).

“We are now in the midst of a heavily discounted capital raising at $1.20 per share, which is notable considering HLS’s $43.5 million buyback that was completed on 27 February 2023 at an average price of $3.85 per share,” he said.

This week has given Healius shareholders who backed the board to rebuff Australian Clinical Lab’s dream consolidation deal and deliver a better outcome something to think about. A combined entity could be attractive, but a big hurdle is still standing in the way – the ACCC, which has outlined “significant preliminary competition concerns”.

With the raise expected to breach ACL’s offer conditions, its next likely step is to alter the ratio of its shares for Healius shares set out in the bid (0.74/1) given there are more shares on issue.

Happy reading,

• EBOS fires up bumper rights issue at 12 per cent discount for Greencross buy.
• Investors dust off Crown, Star merger dreams amid job cuts.
• Soul Patts vets Whitehaven’s debt for $6.4 billion BHP coal buy.
• Pro Medicus founders in $176 million selldown; Unified Capital nabs trade.
• Trade management software business ImpexDocs readies raise.

• OpenAI’s board approached the co-founder of Anthropic about a potential merger, The Information reports.
• A group led by Blackstone and Permira offered to buy Adevinta in a deal valuing the European online classifieds company near $23 billion, Bloomberg reports.
• Binance chief executive Changpeng Zhao will admit violating US laws, and step aside, as part of a $6.1 billion settlement, Reuters reported.

Star has endured a difficult 12 months, with its share price sinking almost 78 per cent to a near-record low of 55¢.

Click here for the latest equity market wrap.