Ramsay Healthcare Limited

Robust Australian demand- a growth catalyst:For FY 2018, Ramsay Healthcare Limited (ASX: RHC) saw its EBIT rising by 6.8% on pcp, and came in at $1.008 Bn. This was on the back of admissions growth rate being above the industry growth rate. However, this was partially offset by the affordability concerns and the negative focus on private health insurance.
 
In future, the company is committed to investing in the brownfield projects which are expected to deliver $242 million in completed projects in FY19. Also, the company continues to target core EPS growth of up to 2% in FY 2019. The company expects the ongoing challenging operating conditions in the UK to continue across its all key regions thus expecting a subdued FY 2019.
 

RHC’s Financial KPI’s (Source: Company Reports)
 
On the financial parameters front, the company is trading at an EV / Sales ratio of 1.5x (TTM), which is at a relative discount with the Industry median of 2x (TTM), hence from the sales generation aspect, the stock seems to have potential upside at current valuations. Also, the ROE stands at 16.80% which is decent enough considering the concerned industry median of 12.4%.
 
Meanwhile, the stock price has gained over the past six months by a marginal 0.71% as on 1 February 2019 and is trading close to lower level. Thus, considering the robust EBIT expansion over the past fiscal, better than Industry ROE, undervalued from sales aspect and price trading at a lower juncture,we maintain our “Buy” rating on the stock at the current market price of $56.910 as on 1 February 2019.
 

Tabcorp Holdings Limited

 
Strong growth across the platforms along with operating synergies: Tabcorp Holdings Limited (ASX: TAH) stated that the they will be announcing the results for the first half of FY19 ending 31 December 2018 on the 13 February 2019. Further, the company will be distributing the dividends on 13 March 2019 with a record date of 19 February 2019.
 
The company, for the FY 2018, had reported an EBITDA before significant items of $736.40 Mn up by more than 46.10% on pcp.  This EBITDA expansion was on the back of the synergies arising from the acquisition of Tatts group and various business improvements initiatives undertaken by it.
 
The group had delivered a strong second half year FY 2018 performance on the back off ‘Lotteries & Keno’ and ‘Wagering & Media’ business divisions which was attained because of the phenomenal growth in the digital platform as well as on account of new products launches.
 
The company is a market leader with domestic market share of ~84% & 57% in the “Lotteries & Keno” and “wagering & media” segments respectively. Thus, these well-established service segments underpin the stability of earnings. The recent ban on synthetic lottery & keno betting has brought in the much-needed regulatory certainty. The wagering and media segment remain to be very competitive however the firm’s unique combination of assets creates an opportunity to develop a differentiated customer experience and value proposition. Also, the completed combination with Tatts group is expected to create EBITDA synergies of at least $130 Mn in FY 21.
 
 

 
Australian gambling expenses by product segment (Source: Company Reports)
 
On the financial metrics front, the company is trading at Price-to-book of 1.30x while the industry median is 2.10x, moreover the dividend yield delivered by the stock is 4.51% which is better than that provided by the industry concerned i.e., 3.40%. Hence, the stock seems to be trading at attractive prices and looking attractive for accumulation.
 
Meanwhile, the stock price has fallen over the past six months by 0.87% as on 1 February 2019.Thus, we believe that the company is poised to benefit from the stable regulatory norms as well as the synergies on account of the combinations completed by it along with the attractive price to book multiples and higher dividend yield, we maintain our “Buy” recommendation on the stock at the current market price of $4.660.
 

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