Hospital operator Circle (CIRC:AIM) nurses a 23.6% share price loss at 51p as news it is ending its management of Hinchingbrooke Health Care NHS Trust triggers downgrades. The company says running the hospital is no longer economically viable, with funding cut by some 10% this year at a time of rising patient admissions.

Web - Circle - 9 Jan 2015

Circle also expects a negative report into the hospital from the Care Quality Commission (CQC) soon. The company anticipates the report will be 'unbalanced' and expects to disagree with many of of its conclusions. 'We are not the only hospital to find their process problematic, and believe that inconsistent and conflicting regulatory regimes compound the challenges for acute hospitals in the current environment', says Circle in its statement today.

Analysts have been quick to revise down forecasts on the imminent termination of the three-year old contract with the NHS, with Numis Securities eliminating Hinchingbrooke-related revenues from its estimates. The impact is a drop in its pre-tax profit forecasts for 2017 and 2018 by between £3 million and £4 million.

Hinchingbrooke was facing closure before Circle stepped in, yet almost reached breakeven last year as Circle generated some £23 million of savings. The Aim-listed company has invested £4.8 million into the hospital already, yet still has to pump in more cash to keep it going. Circle faces a bill of up to £2 million for terminating the contract and to cover re-procurement costs. Further details are expected in the company’s next update, scheduled for February.

Numis number cruncher Charles Weston puts his price target and rating under review for now, though he does not believe the Hinchingbrooke withdrawal will hit Circle’s wider business. 'Given the evident clinical and financial improvement at Hinchingbrooke under Circle’s management, we do not expect this decision to affect the company's other NHS work, and believe that it can still win new NHS business.'

Issue Date: 09 Jan 2015