Ramsay Health Care Limited

Synergistic Deal with Capio: Ramsay Health Care Limited’s (ASX: RHC) stock edged up 0.86 per cent on July 16, 2018 post announcement of the potential takeover deal with Capio in Europe.According to the release, group’s 50.9% owned French subsidiary Ramsay Générale de Santé (RGdS) has launched an unsolicited takeover bid for the Nasdaq Stockholm listed healthcare company Capio AB for the Offer price of SEK 48.5 per Capio share, valuing at Euro 661 Mn (c. A$1,041 Mn). This deal will be funded through the combination of debt and equity wherein RGdS will undertake a rights issue for a planned amount of approximately Euro 510 Mn if the offer proceeds. Further, Ramsay has given an irrevocable commitment to subscribe for its Euro 257 Mn pro rata share which will be funded by debt. With this deal, RGdS expects pre-tax synergies of approximately Euro 20 Mn, in which the major portion are to be realized within 2 to 3 years. According to the management, Capio has a strong portfolio of healthcare facilities in Europe and is a good strategic fit for RGdS which will support the topline growth of the company in the years to come. Further, the offer is subject to various conditions and agreement by the Capio board which may decide not to recommend acceptance of the aforesaid offer by its shareholders. If approved by the Capio shareholders then the transaction would be financially compelling, providing an opportunity for substantial synergies for RGdS as well as further acceleration of the group’s growth strategy and is expected to be core earnings per share (EPS) accretive for Ramsay within two to three years.


Attractive and Diversified asset portfolio (Source: Company Reports)

Meanwhile, the share price has fallen 20.27 per cent in the past six months and currently trades close to 52-week low level. We give a “Buy” recommendation on the stock at the current market price of $ 55.090, considering strong fundamentals, continuous dividend payment, attractive and diversified asset portfolio and potential to grow further at the back of synergistic benefits from the aforesaid deal.
 

Cochlear Limited

Trading at Higher Level: Cochlear Limited’s (ASX: COH) stock tumbled 1.32 per cent on July 16, 2018 with enhanced sentiments on overvaluation of the stock at the current price due to higher PE level (52.89x) among its peer group. The group has recently launched Nucleus Smart App for Android devices offering greater connectivity for the people with a Nucleus 7 Sound Processor. The advantage of this device is to help control the hearing and allowing users to monitor and adjust their settings, view personalized hearing information and locate missing sound processors. As a part of the Nucleus Smart App release, the group has also added a new control feature called ForwardFocus to the Nucleus Smart App to allow users to improve their listening by reducing the noise level coming from behind them. The group has received approval from Australia, the US, and Europe for this device. The group seems to have robust product innovation and strong financial position. Further, recent study by WHO has estimated that over 5 per cent of the world’s population has a disabling hearing loss and by 2050 it will rise to one in every ten people.


Hearing Loss Market Opportunity (Source: Company Reports)

Since the start of the year, the price was up by 22.2 per cent and the stock is trading at a point near to 52-week high level ($205.96). COH stock has also been added to S&P/ASX50 Index, effective from June 18, 2018 as per June 2018 Quarterly Rebalance of the S&P/ASX Indices. Looking at trading level, we maintain our “Expensive” recommendation on the stock at the current market price of $ 202.610 despite ongoing investments and sales force expansion and new innovations which are the drivers of sustainable growth.

 
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