One of the positive aspects that shone through this reporting season has been the ability of companies to reduce costs to maintain profits as top-line growth becomes harder. This flexibility was enhanced through COVID, where companies had to be incredibly nibble as many watched sales plummet overnight. The opposite is true at Helius, with COVID testing volumes a huge win for their pathology business, underpinning a significant uplift in sales. However, 97% of that revenue has disappeared, and they’re not showing the same ability to evolve – their 1H24 results were poor, with nearly every important metric under pressure.
Last November, HLS was forced to raise $187mn through a rights issue at $1.20, a steep 34.6% discount to the stock’s last trade at the time, a few months later, and the stock has slipped ~8% below the raise. So far in 2024, HLS has plunged 32%, and unfortunately, this is another board that provides MM with little confidence; having said, with regard to a $3.40 bid in 2020, “ “the board of Healius unanimously rejects the proposal on the basis that it doesn’t reflect the fundamental value of the company” – the stocks since declined a painful 67% for loyal shareholders.
- While the risk/reward towards HLS has dramatically improved by ~$1.10, we could not buy HLS given their track record and, more importantly, their shocker of a 1H result. The stock looks in need of a trigger to turn it around.
MM believes HLS will be a buy eventually, but not yet.
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