3 Healthcare Stocks - RHC, HSO, MSB

Ramsay Health Care Limited

RHC Details

Expanding footprint into European market to boost topline of the business: Ramsay Health Care Limited (ASX: RHC) is a large-cap healthcare company with the market capitalization of circa $11.05 Bn as of October 30, 2018. RHC has recently announced that its public offer for healthcare services company i.e., Capio has been accepted by 96% of shareholders. The total value of the Offer (for 100% of the issued shares) is SEK8,187 Mn (€788 Mn or AUD1,269 Mn). This comes after Ramsay’s French subsidiary Ramsay Générale de Santé (RGds) placed a public offer to acquire 100% of Capio AB at an enhanced offer price of SEK 58 cash per share. Initially, Ramsay tabled the all-cash offer of SEK 48.5 per share. The objective of this deal is to expand the healthcare network into European market across five countries with the market-leading positions in France and the Nordics and expects progressive core EPS within 2 to 3 years. Further, this deal also provides an opportunity for substantial synergies for RGdS as well as acceleration of the Group’s growth strategy. In our view, growing footprints in European market would work in favour of the company going ahead.


Transaction Rationale (Source: Company Reports)

Recently, the group informed the market about the distribution payment of AUD 2.43570000 with dividend distribution rate of 2.0900 % per annum for RHCPA - TRANS PREF 6-BBSW+ 4.85% PERP SUB RED T-10-10 and it will be paid on April 23, 2019 with the record date of April 3, 2019. Moreover, Craig Ralph Mcnally who had a Direct and Indirect interest in the company, had acquired 7,036 fully paid ordinary shares at the Volume Weighted Average Price of $52.7241 per share via allocation from the Ramsay Employee Equity Trust in respect of the equity component of Mr. McNally’s FY2018 short-term incentive award. Meanwhile, the share price declined by 3.13 percent in the past three months as of October 29, 2018. Currently, the stock traded at a 21.5% discount to a 12-month high of $71.15 against a 7.7% premium to a 12-month low of $51.89. Based on foregoing, we maintain our “Buy” rating on the stock (with a dividend yield of 2.63%) at the current market price of $55.88.


 
RHC Daily Chart (Source: Thomson Reuters)
 

Healthscope Limited

HSO Details

Healthscope Opens Northern Beaches Hospital - Strengthens Growth Momentum:Healthscope Limited (ASX: HSO) has recently announced that it has achieved all New South Wales Government (State) key milestones in relation to Northern Beaches Hospital and the hospital is on track to admit its first patients as they planned earlier. According to the management, this synergistic partnership between the New South Wales Government, the Northern Sydney Local Health District and Healthscope will provide a new healthcare delivery model in Australia along with the facilities. It is intended to serve the healthcare needs and exceed the expectations of the residents of the Northern Beaches’ community for many years to come. Besides this, BGH and AustralianSuper Consortium has again come up with another offer for the takeover. As per the release, BGH entered into cash-settled equity swap over 1.53% of shares, which equates 26,616,996 shares in the company and AustralianSuper acquired a further 1.08% of shares in the company. The offer price has been fixed at $2.36 per share. The takeover success is not guaranteed as the offer which has been made is a non-binding indication of interest as well as is preliminary. The offer also comes with several conditions like debt arrangement for the execution of acquisition, due diligence, operational and regulatory conditions as well as the approval from consortium’s members that is to be received with regard to the investment committee. In addition, AustralianSuper has acquired a further 19,012,916 Healthscope shares. As a result, the BGH Consortium now has an interest of 17.13% in Healthscope which comprises a voting power of 15.60% and 1.53% under the Equity Swap.


Industry Fundamentals Remain Supportive (Source: Company Reports)

From the analysis standpoint, Operating margin for FY18 was recorded at 6.8%, below the industry average of 8.7%. However, the Net margin was 3.2% which is in line with the industry average. HSO has consistently generated value for the shareholders with ROE for FY18 at 3.2% compared to 6.4% in FY17 and 11.9% industry average. Meanwhile, the stock has generated a YTD return of 1.45% and traded at higher PE multiple of 40.38x. Based on foregoing, positive Industry outlook, and expansion of brownfield hospitals, we presume that the company has a potentiality to grow further. Hence, we, maintain our “Hold” recommendation on the stock at the current market price of $2.100.


 
HSO Daily Chart (Source: Thomson Reuters)
 

Mesoblast Limited

MSB Details

Improving Financials: Mesoblast Limited (ASX: MSB) has posted consolidated revenue growth of 617.8% to US$ 17.3 Mn in FY18 as compared to prior year. It was mainly driven by the 152% rise in Commercialization revenue segment from royalty income on sales of TEMCELL HS. Inj. during the period. However, loss after income tax came in at US$35.29 Mn in FY18 from US$76.81 Mn in FY17, marking an improvement of 54% during the same period. It was mainly driven by robust topline growth, reduced spend in manufacturing for R&D, and favorable non-cash items like income tax benefits from the revaluation of deferred tax assets and liabilities after US corporate tax rate changes. As a result, return to the shareholders has also been improved with ROE coming in at -6.6% in FY18 from -14.17% in FY17. On the balance sheet front, the company reported cash and cash equivalents of US$37.76 Mn for FY 18 with the debt-to-equity ratio of 0.11x. It implies that the company can put the funds to operational uses rather than restricting them for the repayment of the debts. Moreover, Current ratio substantially increased from 1.73x to 4.21x in FY18 over the prior year. It displays a decent balance sheet position for the company and we expect the same to continue in years to come.


Significant Increase in Revenue (Source: Company Reports)

On the other hand, the company has expanded its partnership with JCR Pharmaceuticals Co. Ltd. in Japan for the treatment of skin disease. According to the expanded license agreement, MSB has provided an access of its broad patent portfolio for the use of mesenchymal stem cells in wound healing of patients with Epidermolysis Bullosa (EB) in Japan. In which, Mesoblast will receive royalties on TEMCELL product sales for EB. Moreover, Mesoblast has the right to use safety and efficacy data generated by JCR in Japan in support of development and commercialization of its MSC product candidate remestemcel-L for EB and other non-healing wound indications in the United States and other major healthcare markets. Meanwhile, the share price has risen 24.91% in the past six months as at October 29, 2018 and traded close to 52-week high level of $2.470.  As of now, the group is planning to leverage results with additional clinical data from global trials performed by strategic partners. Hence, we recommend a “Hold” rating on the stock at the current market price of $1.930. 


 
MSB Daily Chart (Source: Thomson Reuters)
 
 

 
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