Expansion bodes well for profits
THE NEGATIVE PERCEPTION of the quality of services at public hospitals has forced growing numbers of middle-class South Africans to join medical aids in order to access private healthcare services when needed. This has made the private healthcare sector quite lucrative. Healthcare stocks are seen as defensive, as consumers are likely to continue prioritising healthcare spending even during economic downturns. Mediclinic International is South Africa’s largest private hospital group and has been expanding its footprint in countries like the UK where there is growing demand for private healthcare.
Mediclinic’s stock plummeted in April, correcting from its long-term bull trend, but is now showing signs of potentially recovering all its losses. The acquisition of a 29.9% shareholding in UK-based Spire Healthcare Group for £431.7m (R8.4bn) in June could have been the catalyst for the upside reversal, which could result in a 100% retracement to the all-time high at 13 460c/share. Spire Healthcare is one of the UK’s largest private hospital providers, with 39 hospitals and 13 clinics across England, Wales and Scotland. Investing in Spire is a worthy step for Mediclinic in its quest to grow its business in a developed market with a strong currency. The move is also likely to increase its profits in the long term.
A good buying strategy is identified at any level above 10 800c/share, with an 8% stop loss or at key support at 9 645c/ share. Investors could increase positions again at 11 755c/share, as upside could persist to the 13 460c/share all-time high. Do not go long if Mediclinic fails to trade above 10 800c/share within the next two weeks.