Ramsay Health Care Limited

RHC Details

Capio Acquisition, to be EPS Accretive in Next 2-3 Years: Ramsay Health Care Limited (ASX: RHC) is engaged in the healthcare business with 235 facilities, 25,500 hospital beds and 200 hospital and community franchised pharmacies across seven geographies – UK (34), France (120), Italy (1), Malaysia (3), Indonesia (3), Maldives (1), and Australia (72).

Recent Developments: (1) The company, on 27 May, updated to the ASX that Mr. Bruce Soden will be stepping down as Group Finance Director and CFO in 2H 2019. (2) The company recently announced an ordinary dividend of AUD 2.2931 per share on RHCPA - TRANS PREF 6-BBSW+ 4.85% PERP SUB RED T-10-10. Ex and payment date for the same has been set at October 2, 2019 and October 21, 2019, respectively. (3) RHC also communicated about its French subsidiary, Ramsay Générale de Santé (RGdS), launching a EUR625 mn renounceable rights issue as part of its previously disclosed intention to refinance its purchase of Capio AB.

1HFY19 Performance: For the period, the Group revenue came in at $5.1 billion with a growth of 14.9% and 6.1% (ex Capio). Group EBITDA posted a higher pcp growth of 9.8% to $728.6 million. Ex Capio EBITDA growth stood at 7.2%. 
The company posted a Group Core NPAT (Core Net Profit After Tax) of $290.8 million in the first half of FY19 with an increase of 1%. However, Core NPAT grew by 1.8% to $293.2 million, excluding the acquisition of Capio. Statutory NPAT stood at $270.1 million, posting a growth of 9.6% on pcp. The Management believes that the recorded results for the period are on track to meet the guidance for FY19.


Group Performance 1HFY19 (Source: Company Reports)
 
Coming to the bifurcation of the performance, the Australian business posted a revenue growth of 4.8% (pcp) to $2.6 billion.EBITDA growth at 5.7% on pcp was largely driven by the volume growth and operational efficiencies.

UK business, in the period, faced challenges in Q1 which adversely affected the overall bottom-line in 1HFY19.However, in 2Q, NHS volume growth showed some sign of recovery which is likely to be continued in the 2HFY19. Revenue for the UK business at £209.6 million recorded a growth of 1.6%, pcp. EBITDAR (Earnings before interest, taxes, depreciation, amortization, and restructuring or rent costs) at £44.8 million was down 9.2% on prior corresponding period.

Continental Europe (Inc Capio since 07 November 2018) recorded a solid growth in revenue of ~25.7%to €1.3 billion. EBITDAR at €231.3 million also posted a robust growth of 19.1%.

Outlook: UK business has postured some positive signs in terms of price and volume, however, Brexit may pose some challenges in the short term. The recently announced tariff hike in France, turned out to be a positive for the sector. RHC’s focus to achieve synergies in relation to the Capio, remains in-tact. The company maintained a headship position in Australia with a diversified portfolio and focus on bringing high quality services. Barring unforeseen circumstances, the Management reaffirmed FY19 Core EPS growth of up to 2%, which is including Capio.

Stock Recommendation: At the current market price of $72.760 per share, the stock is trading at price to earnings multiple of 36.550x as compared to its industry median of 15x and EV/EBITDA multiple of 12.9x as compared to the industry median of 9.9x. The valuation parameters and comparison with industry median indicate that the stock is currently trading at stretched valuations. Moreover, The Management expects Capio to be Core EPS accretive in the next 2-3 years.

However, given the timing of acquisition and delays to processes related to completion, the Management expects it to be slightly EPS dilutive to RHC in FY19. In addition, looking at the historical price performance, the stock has gained 34.73% in the last 6-months and 25.66% on YTD basis and is trading at close to a 52-week higher level of $73.300. Hence, we are of the view that most of the developments are priced in at the current levels and we need to seek for new catalysts which can lead a new rally to the stock. Hence, considering the aforesaid facts and valuation levels, we suggest investors to "Hold” the stock at the current market price of $72.760 per share (up 0.248% on 20 June 2019).
  

RHC Daily Chart (Source: Thomson Reuters) 

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