Ramsay Health Care

About the author:

Derek Jellinek
Author name:
By Derek Jellinek
Job title:
Senior Analyst
Date posted:
22 June 2018, 2:25 PM
Sectors Covered:

NHS volumes remain subdued; funding uplift from 2HFY19

Ongoing NHS funding issues have driven private UK hospital industry volumes down to 1% (from 3-4% historically), prompting Ramsay Health Care (RHC) to take a A$125m impairment across six UK sites (i.e. Berkshire Independent, Ashtead, Mount Stuart, Croydon, Renacres and Clifton Park). This non-cash charge relates mainly to onerous lease provisions in FY19 and beyond, mainly in two hospitals (Berkshire Independent and Ashtead) and not to the fixed assets themselves. 

Despite a recent positive tariff adjustment (from Apr-18) and growing patient waiting lists, management expects operating conditions to remain challenging in the medium term, as funding budgets are reset in Mar-19 and it is difficult to determine when we will see a normal pick-up in volumes.

Domestic business seeing low volumes and unfavourable case mix

RHC's Australian private hospitals have experienced weaker growth in medical procedural work and inpatient admissions, while Pharmacy rollouts have slowed, as more time is being spent on integration than on acquisitions. While public hospitals are not transferring ED patients at the same rate as seen historically, total volumes have not disappeared entirely, but are tracking to the low end of historical trends of around 3%.

Case mix also seems to be an issue, with growth skewed toward day/out-patients vs overnight/in-patients and to lower acuity procedures. In addition, management indicated that its visibility into theatre bookings is becoming less clear, flagging the lack of long waiting lists for new and young physicians.

Supply is willing and able...but when will demand return?

RHC has the largest and arguably the best private domestic hospital portfolio around. However, we see no quick supply side fix to what is mainly a demand-side issue. The million dollar question remains...when will volumes revert? Unfortunately, neither management nor we have an answer.

Investment view

Our FY18-20 core NPAT estimates decline up to 3.8%, mainly on lower revenue and margin assumptions across the UK and Australia. While we continue to believe longer term core fundamentals remain sound and see value over this time horizon, the near term outlook remains opaque and likely to handicap outperformance despite attractive trading levels.

We retain our Hold recommendation with a revised share price target.

More information

Morgans clients can login to view our detailed report and revised share price target for Ramsay Health Care (RHC). Alternatively, please contact your Morgans adviser or nearest Morgans office for access.

Disclaimer: The information contained in this report is provided to you by Morgans Financial Limited as general advice only, and is made without consideration of an individual's relevant personal circumstances. Morgans Financial Limited ABN 49 010 669 726, its related bodies corporate, directors and officers, employees, authorised representatives and agents (“Morgans”) do not accept any liability for any loss or damage arising from or in connection with any action taken or not taken on the basis of information contained in this report, or for any errors or omissions contained within. It is recommended that any persons who wish to act upon this report consult with their Morgans investment adviser before doing so.

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