The health­ier hos­pi­tal group

Finweek English Edition - - KILLER TRADE - BY MOXIMA GAMA

The Health & Ser­vices In­dex is my least favourite sec­tor this year – if any­thing, I would rec­om­mend a shif t f rom over­weight to neu­tral sim­ply be­cause it’s overex­tended. How­ever, with the pat­tern Medi­clinic In­ter­na­tional is form­ing, it could se­cure medium-term up­side.

As part of t he pri­vate hos­pi­tal in­dus­try, which has be­come an in­te­gral part of South Africa’s health­care en­vi­ron­ment, Medi­clinic has f lour­ished over the years. With its suc­cess­ful in­ter­na­tional ex­pan­sion its rev­enue is di­ver­si­fied, which means a weaker rand is ben­e­fi­cial to its rev­enue stream. Medi­clinic now earns 50% of its prof­its in Switzer­land, 20% in the United Arab Emi­rates (UAE) and the rest in South Africa and Namibia.

Medi­clinic re­cently re­ported a 16% in­crease in rev­enue for the year to end March, while profit in­creased by 26% to R4.5bn. Seem­ingly, in­vestors ex­pected a bet­ter per­for­mance and shares were down as much as 7% in in­tra­day trad­ing fol­low­ing the re­lease on 22 May. The group blamed the Swiss gov­ern­ment for ad­just­ing the na­tional out­pa­tient tar­iff, which af­fected its Hirs­lan­den unit, the largest pri­vate hos­pi­tal net­work in Switzer­land.

Me d i c l i n i c h a s fallen by ap­prox­i­mately 22% since peak­ing at 13 460c/share in April.

That aside, Medi­clinic gen­er­ally boasts a highly ex­pe­ri­enced man­age­ment team that has led sus­tain­able growth over the past two decades. It also en­joys the benefits of hav­ing Rem­gro, which re­fi­nanced its Swiss and South African debt dur­ing Oc­to­ber 2012, as a ma­jor long-term share­holder.

The fact re­mains that no mat­ter the eco­nomic cy­cle, health­care re­mains in de­mand. There­fore, health­care stock fun­da­men­tals will of­ten be cred­i­ble, and the trend will be more sen­ti­ment-driven.

But as men­tioned be­fore, I be­lieve the Health & Ser­vices In­dex is overex­tended and is due for a medium-term cor­rec­tion – al­ready Net­care and Life Health­care are show­ing signs of dis­tress. But Medi­clinic could stil l have legs to run, thus pre­sent­ing a good switch­ing op­por­tu­nity.

Medi­clinic has re­traced to its sec­ond sup­port trend­line, and I ex­pect it to hold there, given its mega-over­sold rel­a­tive strength in­dex (RSI). If so, Medi­clinic could breach the up­per slope of its fall­ing-wedge pat­tern, con­firmed above 11 200c/share. The up­side tar­get of this break­out would be sit­u­ated at 16 290c/share.

POS­SI­BLE SCE­NARIO:

The sec­ond sup­port trend­line would be breached be­low 9 645c/share, pos­si­bly per­mit­ting a sell-off to­wards the 9 000c/ share prior low. The next sup­port level would be at 8 370c/share. A sell sig­nal would be trig­gered be­low 9 645c/share.

AL­TER­NA­TIVE SCE­NARIO:

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