Ramsay guides to normalised conditions from FY24 as covid fades

Fri 11 Nov 22, 12:16pm (AEST)
Green shoots
Source: Unsplash

Key Points

  • Ramsay reported improved activity and profitability across all regions over the September quarter
  • Given inflationary and covid-related pressures on costs, Ramsay is focused on negotiating improved terms with payors
  • The KKR-led consortium could return with a more favourable offer

Having been hit hard by elective surgery cancellations, staff shortages, and elevated consumable costs during the pandemic, Ramsay Health Care (ASX: RHC) reported improved activity and profitability across all regions over the September quarter as covid cases continue to diminish.

Staff availability, and further recovery in patient volumes remain problematic, but country’s largest private hospitals operator advised investors that costs associated with the pandemic in both here in Australia and the UK were also easing.

On the strength of CEO Craig McNally’s strong outlook for the business, Ramsay’s share price was up around 4% at the open, but the stock has clearly shared in the updraft enjoyed by the broader market following the best rally on Wall St overnight in two years.

“The outlook for the group remains strong as the business is well-placed to take advantage of the positive long-term dynamics driving the healthcare industry,” the company noted.

What happened in the three months to 30 September

The estimated financial impact of the covid environment in Australia and the UK combined fell from around $44m in July, to $5.9m in September, while the total impact in Australia and the UK is estimated to have been circa $64.4.

Ramsay’s lending group agreed to increase its banking covenants ratio (which excludes Ramsay Santé and Ramsay Sime Darby joint venture) from 3.5 x to 4 x to take into account the short-term impact of covid.

  • Group revenue reached $3.445bn, up 6.7%.

  • Earnings (EBITDA) fell 2.3% to $410.6m.

  • Net profit after tax fell 1.2% to $57.4m.

September quarter regional breakdown

Australia: Revenue reached $1.423bn, up 3.6%, while earnings (EBITDA) gained 1.3% to $198.6m. While mental health area experienced slower recovery, surgical admissions were up 8.3%, and medical admissions also gained.

France and Nordic operations: At Ramsay Santé earnings (EBITDA) were down -16.4% to EUR$110m, while revenue was up 7.8% to EUR$1.072bn. While covid cases continue to rise, the French government recently extended the revenue guarantee through to December 31, and activity levels in October showed signs of improvement.

UK operations: Revenue was up 5% and earnings were up 9.8% as covid cases decline, and a weaker sterling contributed to a better result in A$ terms. Ramsay flagged a likely rise in covid and flu cases during the Northern Hemisphere which could dampen trading conditions.

Suitor withdrew bid

During the quarter Ramsay terminated talks on a proposed acquisition by a KKR-led consortium which had offered $88 cash per share.

Having reviewed Ramsay's full year FY22 result – NPAT down -25.9% to $379.20 - and noted the implied meaningful downward pressure on valuation, the KKR consortium was unable to improve proposal terms.

However, given that KKR has expressed particular interest in Ramsay’s ownership of the 47 freehold hospital sites out of 70 hospitals in Australia – seen by many as the jewel within Ramsay’s assets - the consortium may return with a higher offer.

Interestingly, the consortium has noted that should Ramsay consider a new proposal, it would move quickly to discuss acceptable terms.

Group outlook

Management expects underlying earnings growth for the remainder of FY23 to benefit from the $2.7bn spent over the past two financial years expanding and upgrading its facilities and broadening its service base.

Given inflationary and covid related pressures on costs, Ramsay is focused on negotiating improved terms with payors.

“Ramsay expects a gradual recovery through FY23 and more normalised conditions from FY24,” management noted.

What brokers think

Ramsay’s share price is down -11% over one year.

Consensus on Ramsay is Moderate Buy.

Based on Morningstar’s fair value of $66.60 the stock appears to be undervalued.

Goldman Sachs is encouraged by the green shoots appearing within Ramsay’s post-covid recovery and retains a Neutral rating and $59.00 target price.

Based on the six brokers that cover Ramsay (as reported in by FN Arena) the stock is currently trading with 16.8% upside to the target price of $68.98.

However, none of these brokers appear to have updated on Ramsay since September.

Ramsay Healthcare share price over 12 months.


Written By

Mark Story


Mark is an investigative financial journalist and editor who started his career working for Marathon Oil in London. He has a degree in politics/economics and a diploma in journalism. Mark has worked on 70-plus newspapers and financial publications across Australia, NZ, the US, and Asia including: The Australian Financial Review, Money Magazine, Australian Property Investor and Finance Asia. Mark is passionate about improving the financial literacy of all Australians through the highest quality content. 

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