Too much pres­sure

Finweek English Edition - - MARKETPLACE HOUSE VIEW - ed­i­to­rial@fin­ By Mox­ima Gama

Pri­vate hos­pi­tal groups in South Africa have shown sub­stan­tial growth over the past two decades, with Medi­clinic, which has grown its in­ter­na­tional foot­print ag­gres­sively, the largest group by value with a mar­ket cap­i­tal­i­sa­tion of R117.8bn. (Also see page 36.) In sec­ond place is Net­care, with a mar­ket cap of R55.7bn, fol­lowed by Life Health­care with R39.2bn.

On 13 Novem­ber, Life Health­care re­ported a 12.3% in­crease in rev­enue to R14.6bn in the year to end Septem­ber, con­sist­ing mainly of a 8.8% lift in rev­enue from its Southern African oper­a­tions to just shy of R14bn. Rev­enue from its in­ter­na­tional hos­pi­tals, in Poland and In­dia, grew 270% to R648m. Head­line earn­ings per share grew 1.2% to 179.9c.

An ad­di­tional 253 beds were added to the busi­ness dur­ing the year, and it plans to grow its acute busi­ness, par­tic­u­larly in short-term treat­ment for se­vere in­jury in SA.

Life Health­care’s out­look for 2016 re­mains pos­i­tive, with the aim of adding more than 200 beds lo­cally as well as 50 re­nal dial­y­sis sta­tions and a new on­col­ogy unit at Life Hil­ton Hos­pi­tal. About 95% of Life’s rev­enue comes from SA, and be­cause this mar­ket has be­come so sat­u­rated, the fo­cus is on ex­pand­ing in Poland and In­dia, where it in­creased in­vest­ment by R2.2bn in the past fi­nan­cial year. The group fi­nalised three ac­qui­si­tions in Poland in the past fi­nan­cial year, and man­aged to im­prove its EBITDA (earn­ings be­fore in­ter­est, tax, debt and amor­ti­sa­tion) mar­gin from 9.1% to 14%. In In­dia, it com­pleted the ac­qui­si­tion of the Push­pan­jali Cross­lay Hos­pi­tal (since re­named Max Vaishali), and re­ported over­all growth of 400 beds.

How­ever, the share price has been un­der pres­sure and is down nearly 11% since the start of the year. In­vestor con­cerns in­clude the ris­ing cost of med­i­cal care and plans in SA to in­tro­duce a Na­tional Health In­sur­ance, which will in­crease pres­sure on tar­iffs and hos­pi­tal prof­itabil­ity.

Al­though the group is­sued a fi­nal div­i­dend of 86c per share, bring­ing the to­tal div­i­dend for the year to 154c/share, up 9.2% year-on-year, it’s strug­gling to end its bear­ish con­sol­i­da­tion above 4 300c/share. Life Health­care is cur­rently trad­ing out of its four-year bull trend, breached in May this year. A short po­si­tion should be ini­ti­ated be­low 3 445c/share, with a tight stop loss. If the share price was to give in fur­ther, sup­port at 2 855c/ share could then be tested.

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