Company Overview: Ramsay Health Care Limited is an operator of hospitals. The Company operates approximately 235 hospitals and day surgery facilities across Australia, the United Kingdom, France, Indonesia, Malaysia and Italy. The Company's segments are Asia Pacific, UK and France. The Company's facilities cater for a range of healthcare needs from day surgery procedures to complex surgery, as well as psychiatric care and rehabilitation. In Australia, the Company operates approximately 73 hospitals and day surgery units. In the United Kingdom, the Company provides independent hospital services in England, with a network of over 35 acute hospitals and day procedure centers providing a range of clinical specialties to private and self-insured patients, as well as to patients referred by the National Health Service (NHS). In the United Kingdom, it also operates a diagnostic imaging service and provides neurological services through its over three neuro-rehabilitation facilities.


RHC Details

Ramsay Health Care Limited is an Australian operator of hospitals that operates approximately 235 hospitals and day surgery facilities across Australia, the United Kingdom, France, Indonesia, Malaysia and Italy. The Company's facilities cater to a range of healthcare needs from day surgery procedures to complex surgery, as well as psychiatric care and rehabilitation. The Company is investing strategically in research and technology as well as shaping its workforce, to ensure that it remains at the forefront of healthcare delivery in the future. The Group operates in a sector that will continue to have an enormous upside for many years to come. In all regions, health spending is rising as populations grow and age, technologies improve, and patients become better informed.  Thus, demand for healthcare is rising in both traditional and non-traditional care settings. The Group is therefore, looking at further out-of-hospital opportunities. This includes its pharmacy strategy, to deliver innovative, cost-effective and patient-centred care to the community. RHC is also focused on achieving efficiencies in its businesses and, to this end, it is investing in a major transformation project in its French operations that will centralise non-core hospital resources and will distinguish this business for the long term. While the first half result may have been slightly below the market expectations based on a decent performance in Australia and headwinds from UK and France, the contributions from completed brownfield developments and pharmacy acquisitions are expected to support the growth profile for the Australian business in the second half and into FY19. This is expected to benefit the group on the whole.
 

Company’s Diversified Portfolio (Source: Company Reports)
 
Decent Financial Performance for the first half of 2018: Ramsay Health Care announced a Group Core Net Profit After Tax (Core NPAT) of $288.0 million for the six months to 31 December 2017, a 7.5% increase on the previous corresponding period. Core NPAT delivered Core EPS of 139.0 cents for the half year, an increase of 7.8% on the 128.9 cents recorded in the previous corresponding period. The Group’s revenue ($4.4 billion) and EBIT ($470.4 million) was up by 3.0 per cent and by 1.5 per cent as compared to prior corresponding period. The Company’s statutory net profit after tax, attributable to members of the parent (after adjusting for net non-core items after tax) of $246.5 million, was down 3.7% on the prior half, principally due to Ramsay Générale de Santé (RGdS) provisioning for a significant centralisation programme to be implemented over the next three years. The Board announced a fully-franked interim dividend of 57.5 cents, up 8.5% from the previous corresponding period with Record Date of 7 March 2018 and payment on 29 March 2018.
 

NPAT and EPS Performance (Source: Company Reports)
 
Operational Performance: The Company’s brownfield development programme continues to strongly reflect the increasing demand for healthcare services. A further $146 million in capacity expansions were approved by the Board during the six months to 31 December 2017 and $57 million worth of brownfields were completed late in the first half. The Group’s Australian operations delivered 9.1% EBIT growth on the previous corresponding period due to the market volume growth and the benefits of recent cost efficiency programmes and revenue ($2.5 billion) from Australian operations was up by 4.3 per cent as compared to the same period in the prior year. As at 31 December 2017, the Group Consolidated Leverage Ratio was 2.4 times, well within its internal parameters. Twenty-three retail pharmacies were added to the Ramsay Pharmacy franchise network in Australia during the first half FY18 bringing the total number in the network to 54. While the development of this network was slower than anticipated in the first half due to regulatory delays, it has gathered momentum recently following the finalisation of the Malouf transaction in Queensland in December 2017.


Financial Performance for Australia and Asia Operations (Source: Company Reports)

Before joining the Ramsay franchise network, Malouf was the largest privately-owned pharmacy group in Queensland and one of Australia’s leading pharmacy brands with 18 stores and employing 450 staff. Net Profits ($8.5 million) for Equity accounted share of Asia joint venture were up by 24.1 per cent on previous corresponding period. Revenue for UK and France business was down by 4.8 per cent and by 1.1 per cent as compared to previous corresponding period and amounted to £206.2 million and €1.1 billion, respectively. EBITDAR for UK and France was also down by 4.6 per cent and by 5.8 per cent on previous corresponding period and amounted to £49.4 million and €194.1 million, respectively. In the UK, the Group is expecting that a positive tariff adjustment would take effect from 1 April 2018, NHS demand management strategies were currently impacting volumes significantly and as there are a burgeoning number of people waiting for treatment in the UK, so it is expecting that normal volume growth will return in the short to medium term.

Positive Outlook: The significant centralisation programme being undertaken by Ramsay Générale de Santé (RGdS) would see non-core hospital functions such as finance, administration and HR, located in a separate shared service centre in the outer suburbs of Paris. Once fully implemented, it will result in annual recurring gains to RGdS of €5 million. This programme will commence in the second half of FY 2018 and will take almost three years. RGdS has provided for a restructuring charge of €43.7 million (net impact to Ramsay Group Statutory NPAT of $23.9 million), which is mainly for future redundancies and has been expensed as a non-core item in the half year. Importantly, the pipeline for capacity expansions remains strong with over $500 million in business cases currently under consideration including a major expansion of Joondalup Health Campus in Perth.


Leverage Ratio Trend (Source: Company Reports)

Barring unforeseen circumstances, it reaffirms Core EPS growth of 8% to 10% for FY18: The Group welcomed recent government reforms which aimed to improve the affordability of private health insurance in Australia and demonstrated the government’s strong commitment to the country’s balanced public/private system. Ramsay Health Care (Ramsay) takes its obligations under the Competition and Consumer Law seriously and has worked cooperatively with the ACCC during its investigation into a matter in Coffs Harbou and as this case is before the court so Ramsay will not be making any further comment on the allegations other than as required to keep the market informed in accordance with its continuous disclosure obligations. Nonetheless, based on company’s strategy, development pipeline, and scale and diversity, RHC has reaffirmed its Core EPS growth of 8% to 10% for FY18. The group would also reinvest 50% of core EPS into business while maintaining a dividend payout ratio of about 50%.

Catering to the rising health care needs: Ramsay’s robust balance sheet and strong cash flow generation continued to provide it with the flexibility to fund the rising demand for brownfield capacity expansion, future acquisitions and ongoing working capital needs. Despite ongoing challenges in the operating environment in Europe, the Company achieved a solid first half result driven by a strong performance in its Australian business. In addition, the increasing proportion of people with chronic disease and mental illness is also driving up treatment volumes. RHC expects the operating environment in Australia to remain positive while the environment in Europe may remain challenging. Ramsay’s scale and diversity would ensure that it continues to deliver earnings growth in a changing health economy.

Stock performance: While the short-term view may be volatile, and the market has been a bit concerned over the disposal of interests by the company’s directors (for example, CEO Mr Craig McNally has recently sold 75,000 shares on market to meet some personal tax obligations, and Roderick Hamilton McGeo earlier disposed of 4,500 ordinary shares, held through McGeoch Holdings Pty Ltd); the long-term potential is expected to remain intact. Attractive demographic sector fundamentals combined with Ramsay’s geographic, case-mix and reimbursement diversification as well as a consistent execution of Company’s strategy, is expected to underpin future growth for the organisation. The percentage of debt in the total capital employed decreased from 60.9 per cent in 2016 to 57.2 per cent in 2017 while Return on Equity has been consistent around 22-23% in last three years, which is above the sector average. Since past 5 years, the stock price has been rising that is by 98 per cent and the same was up by 2.98 per cent in the past one week after a 6.2% fall noted in last three months. It is expected that the share price will get boost from the high-quality business and expansion of market share in North America and China. So, by looking at the healthcare landscape and potential of the Company, we give a “Buy” recommendation at the current market price of $ 64.690.
 

RHC Daily Chart (Source: Thomson Reuters)

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