Company Overview: Ramsay Health Care Limited is an operator of hospitals. The Company operates approximately 223 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 70 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

Solid performance in core business: Ramsay Health Care Ltd.’s (ASX: RHC) core Australia business continued to perform strongly wherein their Australian and Asian businesses revenue surged 7% to $4.7 billion in FY17 while EBIT enhanced 13.9% on a year on year (yoy) basis. EBIT margin improved 80 basis points to 13.6% as of FY17. Ongoing growth in admissions and procedural volumes drove the business despite tough tariff environments. On the other hand, the group’s European businesses showed resilience given volatile tariff environments for the near term. Ramsay Générale de Santé (GdS) reported a rise in EBITDAR of 0.5% to €448.3 million in France as compared to the prior corresponding period. Ramsay GdS is focused on developing strong relationships via their new government cluster strategy to strengthen the portfolio in local geographies. They are also pursuing acquisition opportunities as well as some small divestments. For instance, Ramsay GdS acquired a patient transport business in July 2017. As per the UK business performance, the revenue enhanced 4.6% yoy to £449.2 million while EBITDAR surged 1.7% to £113.9 million. RHC focused on volume growth while controlled costs in both the markets. Two new facilities, Croydon Day Surgery in inner London and Tees Valley Private Hospital in Middlesbrough (replacement facility) would be opening in FY’18. Meanwhile, the group declared a final dividend of 81.5 cents, leading to the full-year dividend of 134.5 cents fully franked, which is a rise of 13.0% against the prior corresponding period (pcp).
 

Core NPAT and EPS Performance (Source: Company reports)
 
Well positioned in terms of capital to support brownfield capacity expansion: The group has built a solid balance sheet to support their ongoing brownfield capacity expansion, potential acquisitions as well as their ongoing working capital needs. Their Consolidated Leverage Ratio reached 2.2 times as at June 2017 against 2.5 times of 2016. On the other side, the group along with their wholly owned subsidiaries restructured their current Australian dollar, GBP and Euro senior debt facilities, into new Syndicated Debt Facility Agreements. The new Agreements are believed to offer Ramsay with better terms and conditions, especially lower margins and extended maturity in respect of the GBP and Euro debt facilities. Further, there will be improvement in flexibility to fund future growth initiatives, enhanced access to offshore debt markets as well as improved access to additional debt funding. Meanwhile, Ramsay GdS finished an Amend and Extend of its senior debt facilities, including a two-year extension of maturity date to October 2022.
 

Consolidated Balance Sheet Leverage Ratio (Source: Company reports)
 
Pipeline of brownfield expansions: Ramsay’s investments in the Australian market is ongoing to ensure the quality of their facilities as well as to position themselves to leverage the rising demands from the ageing and growing population. The group finished or started over $500 million worth of projects in FY17 which comprises the opening of two brand new facilities: The Southport Private Hospital on the Gold Coast and the Border Cancer Centre in Albury. The group currently has $385 million in projects under construction worldwide which are due to finish over the next two years. They are expanding St Andrew’s Private Hospital in Ipswich, Albert Road Clinic in Melbourne, Warners Bay Private Hospital in Newcastle and the new Northside Clinic in Sydney. The group intends to open the new Croydon Day Surgery at UK during September 2018. Their new Northside Clinic at St Leonards has a net of 24 beds while Albert Road Clinic has 48 beds. The group’s Lake Macquarie has 30 beds. RHC also has a pipeline of theatres/catheter laboratories at North Shore, Westmead, St George, Sunshine Coast, Baringa and Peninsula Private Hospitals. The group would add 81 beds, 2 theatres, plus new private ED via their St Andrew’s Ipswich Private Hospital while their Northside Macarthur has 14 beds. Major consulting suite developments at John Flynn has 21 suites while Greenslopes has 30 suites. The Private room conversion at Greenslopes is creating 78 more private rooms. Meanwhile, the WA Government announced a Statement of Intent regarding the expansion of Joondalup Health Campus worth $167 million (public component).
 
Focusing on Innovation: Ramsay GdS launched their first digital admission process for patients in FY2017 at France. This process is designed to help in the admission for patients and would assist hospitals to improve discharge management services to patients. The group also started cancer clinical trials network in Australia across 12 facilities which would offer their cancer patients with a better access to the latest cancer drugs and treatments. Being one of the major providers of cancer services in the country, the group is offering patients with access to new therapies for cancer.
 
Target Industry drivers:Rising ageing population, growing prevalence of chronic diseases and improving medical technologies would continue to be the drivers for the group’s performance. Global life expectancy is expected to be 73.7 years in 2019 which is a rise of over 2 years as compared to a decade earlier. Over 65s would contribute about 10.8% of the population by 2019 which is a 604 million rise from 2014. Chronic diseases like obesity, cardiovascular disease, hypertension and dementia are currently persistent and widespread health problems. Diabetics are forecasted to rise to 592 million by 2035 from 387 million. Meanwhile, genomics and the emergence of precision medicine would open new avenues of targeted therapies for the most challenging diseases.
 
Outlook:The group believes that the favorable demographic sector coupled with their geographic, case mix and reimbursement diversification would drive their potential growth. The group continues to expand their current business via brownfield developments, and accordingly is pursuing public/private collaborations. The group is expanding and developing the hospital business across the world to cater to the ageing and growing population. The group forecasts a strong growth in their Australian hospital business to continue in FY18. RHC is seeking to enhance the tariff in the UK in April 2018; and in France, the election of the new government improved the business and consumer sentiment, which is a positive driver. A huge potential has also been identified for the out of hospital growth opportunities in adjacent businesses like retail pharmacy, across all markets.
 
Stock performance:The shares of RHC corrected over 11.7% in the last one year (as of October 20, 2017) as the group has been expecting a challenging environment for the Europe business in the near term. The group is targeting a Core EPS growth of 8% to 10% for FY18, which is below its FY17 performance. On the other hand, the group derives majority of the business from Australia, while the region’s performance continues to be strong. RHC is also pursuing the out of hospital opportunities in adjacent businesses like retail pharmacy wherein their Pharmacy Franchise Network is rapidly expanding. Ramsay Pharmacies is located in major hospitals, offering a base for the provision of medication management and integrated care to their patients beyond the hospital walls. The Ramsay pharmacy franchise network is on track to reach 55 retail pharmacies once current contracts are finished. The group target industry fundamental drivers look strong while it is focusing on operational efficiencies and has built a pipeline of development opportunities. RHC has reported for a total dividend CAGR of 16.5% from FY14 to FY17. The recent distribution amount of $2.3525 is payable on April 20, 2018 for shareholders with record on April 05, 2018. RHC stock recovered over 5% in the last four weeks (as of October 20, 2017) and we believe there is potential in the stock given the recent developments and updates. We give a “Buy” recommendation on this dividend yield stock at the current price of $66.17
 

RHC Daily Chart (Source: Thomson Reuters)

Disclaimer
The advice given by Kalkine Pty Ltd and provided on this website is general information only and it does not take into account your investment objectives, financial situation or needs. You should therefore consider whether the advice is appropriate to your investment objectives, financial situation and needs before acting upon it. You should seek advice from a financial adviser, stockbroker or other professional (including taxation and legal advice) as necessary before acting on any advice. Not all investments are appropriate for all people. Kalkine.com.au and associated pages are published by Kalkine Pty Ltd ABN 34 154 808 312 (Australian Financial Services License Number 425376). The information on this website has been prepared from a wide variety of sources, which Kalkine Pty Ltd, to the best of its knowledge and belief, considers accurate. You should make your own enquiries about any investments and we strongly suggest you seek advice before acting upon any recommendation. Kalkine Pty Ltd has made every effort to ensure the reliability of information contained in its newsletters and websites. All information represents our views at the date of publication and may change without notice. To the extent permitted by law, Kalkine Pty Ltd excludes all liability for any loss or damage arising from the use of this website and any information published (including any indirect or consequential loss, any data loss or data corruption). If the law prohibits this exclusion, Kalkine Pty Ltd hereby limits its liability, to the extent permitted by law to the resupply of services. There may be a product disclosure statement or other offer document for the securities and financial products we write about in Kalkine Reports. You should obtain a copy of the product disclosure statement or offer document before making any decision about whether to acquire the security or product. The link to our Terms & Conditions has been provided please go through them and also have a read of the Financial Services Guide. On the date of publishing this report (mentioned on the website), employees and/or associates of Kalkine Pty Ltd do not hold positions in any of the stocks covered on the website. These stocks can change any time and readers of the reports should not consider these stocks as advice or recommendations.