Too much pressure
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.