From flourishing to requiring TLC

Health care is a growing industry and companies are looking far and wide for opportunities to expand and increase their profits

BUY, HOLD, SELL

MEDICLINIC INTERNATIONAL PLC Share price: R188 JSE code: MDC

BUY THIS IS AN AMBITIOUS AND WELL-RUN hospital operator that has facilities not only in SA but also in Namibia, Switzerland and the United Arab Emirates (UAE).

Mediclinic International has 73 hospitals and 34 clinics in these operations.

Founded in 1983, the company’s revenues have surged from R100m in 1987 to R35.2bn in 2015. This is a 24.3% annual compound growth rate, which is something that has the potential to attract investors to the share.

Revenues will continue to do well — because health care remains a growth industry internationally — and will be bolstered by an ageing population with greater burdens of disease.

Mediclinic International continues to search for acquisition targets in new countries and where it has already bought companies. It is set to gain from amplified requirement for health-care services worldwide.

The company recently finalised the acquisition of Al Noor Group in the UAE and an almost 30% stake in the UK-based Spire Healthcare Group, giving it a broad geographic diversification and added scale to negotiate favourable pricing.

The next acquisition target could emerge from Europe, where there are many patients with government support, a Cape Town-based fund manager told IM.

This will make hospitals more profitable, making health-care stocks a solid place for long-term investors, he said. ■■

LIFE HEALTHCARE Share price: R37.95 JSE code: LHC

HOLD LIFE HEALTHCARE, SA’S secondbiggest private hospital operator, has delivered a strong performance, with an 11% surge in interim revenues.

The company has grown aggressively since it was first launched 25 years ago. It also grew organically and through acquisitions after listing on the JSE in 2010.

Its strategy has been to become a leading health-care operator in emerging markets other than southern Africa by 2020. These markets include Europe and India.

In April 2014, it acquired an 80.7% stake in Scanmed Multimedis, a private health-care service provider in Poland.

In November that year it increased its shareholding to 46.2% in India’s Max Healthcare Institute, an acute care hospital business. India presents a strong outlook for the company due to the country’s fast-growing private public sector provision.

In 2016, it bought 100% of Polska Grupa Medyczna, which operates five cardiovascular wards in southern Poland.

It has set aside R700m a year for the next four years in Poland.

“In Southern Africa, the group aims to add more than 20 acute hospital brownfield beds in the next six months,” CEO Andre Meyer says. “In Poland, the group will explore further acquisition opportunities. The Max Healthcare business in India will continue to focus on driving revenue through increasing the number of operational beds,” he says.

ADVANCED HEALTH Share price: R1.63 JSE code: AVL

SELL THIS ALT-X-LISTED DAY CARE HOSPITAL group has been working hard to grow its profits in recent times but this objective has been slow to be realised.

No wonder it described its performance in the six months ended December 2015 as “satisfactory”. Its earnings before interest, tax, depreciation and amortisation for the period sagged to R7.7m from R13.5m in the previous comparable period. Headline earnings per share slipped from 2.33c to 0.51c in the period under review.

In SA, it has grown organically in the past year. Its main focus in that time has been on the development of new facilities in line with its objective to manage and control 20 of them by 2020.

It has called on investors to be aware that the new developments require a settling-in period before financial gains materialise. It is not clear whether potential investors will take heed, as the share is the most expensive on the Alt-X board with price:earnings of 40.5.

Additionally, management is now focusing on the marketing and promoting the newly developed facilities with the aim to maximise the utilisation of these.

The company is also on the lookout for further opportunities, including acquisitions, in SA and Australia. It has R115m in cash and cash equivalents that it could tap into to fund these. Maybe this, and its organic growth strategy, could improve earnings growth.