Key statistics: ASX: RHC
Closing share price 26.09.18: $55.050
52-week high: $71.150
52-week low: $53.010
Most recent dividend: 86.5c
Annual dividend yield: 2.6%
Ramsay Health Care Limited (RHC) is a global hospital group which operates 221 hospitals, 14 day surgeries and caters for a range of healthcare needs.
RHC recently released its results for the 2018 financial year and while Ramsay had a tough year, its valuation is looking more attractive than it has for a while.
Growth in the short term is predicted to slow and 2019 earnings per share are expected to grow by only a paltry 2%.
This can be attributed largely to two main factors. Firstly, 8% of Ramsay’s revenue is generated from UK hospitals, however, The National Health Services’ attempt to slow admission growth and a 3.5% cut to the fees paid to Ramsay, is expected to result in a decrease in revenue. Secondly, the company’s French operations – which account for 39% of revenue – are being affected by slow admissions growth and a fee cut by the government.
It’s not all bad news. Over the long term, RHC’s competitive advantage will be driven by a mix of acquisitions, an ageing population, efficiency improvements, and minor price increases from private health insurers.
Australian admissions account for just over half the company’s revenue, had reasonable growth in 2018 – above the overall industry but still below revenue levels. And according to the 2015 Intergenerational Report, the number of Australians over 65 is expected to double over the next 40 years.
Ramsay is well positioned to take advantage of the ageing population, having a dominant market share of around 27% of the private hospital market, and no other stock will benefit from an ageing population as significantly.
Further, while the company’s overseas operations are today’s trouble-makers, they offer significant opportunity for growth over the next few years as increased economies of scale help to improve profit margins.
While a poor short-term prediction looks formidable to investors, we have upgraded RHC to a Buy recommendation as we believe the long-term outlook for the company from the potential growth opportunities from an ageing population and overseas growth opportunities delivers a favourable outlook for Ramsay.