Ex­pan­sion bodes well for prof­its

Finweek English Edition - - HOUSE VIEW - BY MOXIMA GAMA ed­i­to­rial@fin­week.co.za

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.

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