Capitol Health Ltd (ASX:CAJ) Brings Down Debt, Reaffirms FY’17 Guidance

Capitol Health Ltd (ASX:CAJ), one of the leading Australian diagnostic imaging facilities operator, announced successful completion of its capital raising efforts to offset the unsustainable debt load on its balance sheet. CAJ had earlier announced a $38.5 million share placement on Feb. 28 to improve its financial health, so that the company can focus on growth.

Primarily involving institutional investors, the capital raised through equity placement helped reduce its Net Debt to EBITDA ratio, an acceptable financial health metric among its peers, to 2.16x from 4.3x at the start of Dec’16. CAJ said it’s targeting to bring down the ratio below 2.0x in FY’18 (kicks off this July) through property sales and free cash flow generated through operations.

Reaffirms FY’17 guidance

CAJ also reaffirmed its FY’17 EBITDA guidance of $19.5–$21.5 million, expected to generate $5.5 million in net earnings, an improvement from $4.7 million loss recorded during the year to Dec’16. The trading conditions have continued to improve through the third quarter (ended Mar’17) as Medicare receipts and volumes showed sustained growth, “although still well below historical averages”, said the company.

Price of company shares grew nearly 35 times their early-2012 level of around $0.03 in a little over three years. However, they lost most of those gains by the end of 2015 and are down almost 18% over the past year, now trading at $0.16, pointing to a market capitalization of $130 million. CAJ’s investment case worsened as the company came across multiple external headwinds, including reduced federal aid for the industry.

While it swung to loss as demand at its facilities vanished, the company saw debt rising significantly driven by acquisitions. Expectations of substantial dilution in equity further pressured shares downward. However, its fortunes seems to be turning with last six months showing continued improvement in share prices as the company is on track to turn profitable again. A sign of strong investor interest also reflected in CAJ’s oversubscribed capital raising share issues.