KALIN®

RAMSAY HEALTH CARE

Oct 12, 2015

| Read Time :10 Mins

RHC:ASX

Investment Type

Large-cap

Risk Level

Action

Rec. Price ($)

COMPANY OVERVIEW - Ramsay Health Care Limited is an Australian company engaged in operating private hospitals and has three reportable operating segments being Asia Pacific, UK and France. The Company owned and operated 117 hospitals and day surgery facilities across Australia, the United Kingdom, France and Indonesia. The Company’s facilities cater for a range of health care needs from day surgery procedures to surgery, as well as psychiatric care and rehabilitation. As of June 30, 2014, the Company had approximately circa 14,500 beds and treated over one million patients per annum. In United Kingdom it has a network of 38 acute hospitals and day procedure centers. In May 2013, Ramsay Health Care Ltd acquired Peel Health Campus. In June 2013, the Company’s French subsidiary Ramsay Sante acquired almost 90% of Clinique de l’Union. In December 2013, it announced that its subsidiary Ramsay Sante acquired Medipsy, from Generale de Sante.

Ramsay Shareholder Return (Source - Company Reports)

Ongoing earnings growth: Ramsay Health Care Limited (ASX: RHC) reported a revenue increase by 49.8% yoy to $7.4 billion during fiscal year of 2015, while its Group EBIT rose by 37.4% yoy to $803.9 million. As a result the group delivered a Net Profit after tax of $412.1 million during the period, which is a 19% improvement as compared to the prior financial year. Consequently, RHC’s Core net profit after tax generated an earnings per share of 196.6 cents for the 2015 financial year, an improvement of 20% as compared to the 163.9 cents in 2014 financial year. The group declared a fully franked final dividend of 101 cents which rose by 18.6% against 85 cents in prior corresponding period, and maintained a dividend payout ratio of around 50% of core earnings per share. Ramsay Health Care also enhanced its balance sheet during the fiscal year, and improved its total assets by 67.2% yoy to $7,616.98 million driven by rising PPE on the back of brownfields development program and Gds acquisitions. But total liabilities rose 105.6% yoy due to Gds acquisition borrowings and loans. Meanwhile, RHS has built a strong network of 226 hospitals, with 115 in France, 36 in United Kingdom, 3 in Malaysia, 3 in Indonesia and 69 in Australia. Ramsay Health Care has day surgery centers, rehabilitation and psychiatric units and treatment centers, wherein over three million patients would be admitted in the hospital every year and has over 60,000 employees.

Consistent financial performance improvement over the years (Source: Company Reports)

Rising healthcare demand coupled with government programs and expanding market opportunity drove Australia and Asian business: Ramsay’s Australian and Asian business recorded a revenue of $4,055.5 million in fiscal year of 2015, which is an increase by over 8.2% as compared to 2014 fiscal year driven by solid volume growth on the back of growing ageing population as well as rising diseases, which drove the admissions to the group’s hospitals. EBITDA for Australian and Asia improved by 9.3% on a year over year basis to $651.5 million in fiscal year of 2015, while EBIT margin improved by 50 basis points as compared to last fiscal year. This ongoing performance indicates the group’s focus on quality wand accordingly RHS has strategically started the brownfield program to expand its capabilities. Ramsay Health Care Asian Hospital Operations is also generating solid operational performance driven by Malaysia and Indonesia operations. The growing diseases, ageing population coupled with government programs would increase the demand to health care. Meanwhile new government-led universal health system would drive the Indonesia business. Ramsay health is also targeting the huge China opportunity for growth. RHS made an agreement with Jinxin, a Chinese based health care company, to jointly operate five hospitals in the city of Chengdu, China during this year. Ramsay targets to gain its foothold in China with this opportunity and use its operating expertise coupled with association with Chinese health care organization to target the booming Chinese market.

Australia and Asia Financial Performance (Source: Company Reports)

Growing NHS admissions coupled with alliances contributed to UK and France business: Ramsay’s UK business segment revenues rose by 8% yoy $413.2 million during fiscal year of 2015 on the back of 11% growth in NHS admissions leading to over 75% of total UK segments admissions. Moreover, the region improved its EBITDA by 11.2% yoy to £59.3 million during the fiscal year of 2015 while EBIT rose by 14.6% yoy to £40.5 million. The region also maintained its EBITDAR margins at 25.8%. With regards to the France business, the revenues delivered outstanding performance during the period, as Ramsay Santé and Generale de Sante generated more than estimated performance wherein Generale de Sante delivered nine months contribution to financial year ending on June 30, 2015. Both the hospitals integration is ongoing, while RHS estimates the combined business synergies in the coming twelve months. Management reported that Ramsay Générale de Santé is well positioned in its regional market places and would benefit from the rising volumes.
UK and France business performance in FY15 (Source: Company Reports)
Targeting growth via acquisitions and alliances: The group settled the Ramsay Santé and Générale de Santé merger on July 2015, with Générale de Santé and Ramsay Santé shareholders approving the transaction. Ramsay Health Care held 50.9% controlling interest in this merged entity which now has 115 facilities, 101 hospitals and around 20,000 employees. Subsequently, Ramsay Générale de Santé has become the major private hospital group in France and made negotiations to attain nine hospitals in Lille owned by HPM Group, which are now under regulatory approvals and are estimated to be finished by the end of this year.
Acquisitions impact on balance sheet (Source: Company Reports)
Expanding Brownfields capacity to capture the growing demand: Ramsay is building its capacity to address the rising demand through its Brownfields program. Accordingly, the group finished developing capacities worth of $190 million during fiscal year of 2015 which comprised over $58.2 million expansion related to Warringal Private in Heidelberg, Melbourne; $53.3 million worth of expansion at Pindara Private on the Gold Coast as well as the $19.5 million expansion of Kareena Private in Sydney. The group also approved over $197 million for building new brownfields capacity along with existing projects. As a result, RHS estimates to generate over 33 projects leading to a total of 1041 beds (net 754) as well as add 41 theatres during fiscal years 2015 and 2016. Some of the project developments in fiscal year of 2016 includes developments at Wollongong with 151 beds and 8 theatres; Hollywood with 90 beds and 6 theatres; Peninsula with 71 beds and 1 theatre; Cairns with 56 beds; New Farm Clinic with 56 beds; North Shore with 45 beds and 1 theatre; St George with 35 beds and 3 theatres and Lake Macquarie with 30 beds. RHS intends to maintain its state of art facilities by offering its patients, staff and doctors with the latest equipment in theatres, wards and medical equipment as a part of its brownfields program.

RHC DIVIDENDS (SOURCE - THOMSON REUTERS)

ICOHM alliance highlights: Ramsay health care also made a strategic alliance with the International Consortium for Health outcomes Measurement (ICHOM) , and therefore became a the first multinational hospital group to partner with the US-based organization focusing on patient’s needs. Accordingly, RHS intends to focus on prostate cancer, low back pain, and depression and anxiety with ICHOM help. With ICHOM partnership, the group joined leading medical institutions, like Boston Children’s Hospital, Great Ormond Street Hospital in London and Erasmus MC in the Netherlands.
RHC DAILY CHART (SOURCE - THOMSON REUTERS)
Stock Performance: The group intends to maintain its steady growth and is positioning itself to be among the major private hospital operators across the world. Accordingly, the group is expanding its presence in China, Indonesia, Malaysia and France apart from Australia. Moreover, rising ageing demographics would continue to drive the ongoing capacity expansion by the group through its brownfield investment strategy. Meanwhile, Ramsay Health Care estimates its core net profit after tax as well as its core earnings per share to rise in the range of 12% to 14% during fiscal year of 2016. Synergies from two hospitals integration - Ramsay Santé and Générale de Santé in the coming months would also boost its France business. Rising ageing population, exportable operational model and government initiatives would further drive its overall business growth. Meanwhile, Ramsay Health Care is well positioned to leverage the growing demand for health care in Australia wherein Health insurance participation is quiet strong with more than 47%. The shares of Ramsay healthcare delivered a year to date returns of over 4% (as of October 9), but corrected over 9.5% in the last six months. However, we believe that the stock is poised to grow in the coming months given its solid growth potential. RHS has a modest dividend yield of 1.7%. Based on the foregoing, we give a “BUY” recommendation to the stock at the current price of $59.06.

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