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

Financial Mail - Investors Monthly - - Con­tents - Mzwandile Jacks Pic­tures: is­tock

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.

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