Trading update sees drop in Netcare shares
HOSPITAL group Netcare’s share price dropped 6.23% to R25.60 following the release of the group’s pre-close trading update for the period from October 1 2016 to the end of March 2017.
The share price has been falling for three weeks in a row, declining 19.5% in March.
The trading update showed revenue for the group rose 7.7% for the first half of the 2017 financial year despite a decrease in patient days.
With 114 hospitals and more than 13 300 beds, Netcare operates the largest private hospital networks in SA and the UK. Its market cap is just more than R38.57-billion.
Netcare said revenue per patient rose as did an associated increase in drugs and surgical revenue per patient day. Higher revenue occurred against a 1% drop in patient days.
The group said lowerthan-expected patient days put pressure on payroll management, made worse by the greater complexity of admissions.
“This increased complexity also resulted in high consumption of more expensive drugs and surgicals, on which no margin is Netcare said.
Equity analysts Ross Krige and Alex Comer of JP Morgan said in a report on Bloomberg that SA’s hospitals had come under pressure for a couple of years as medical scheme growth has been waning.
A number of reports released over the course of a J P Morgan inquiry into SA’s healthcare have highlighted utilisation as a significant driver of cost pressures and that it was seeing a “concerted effort by funders to push back hard”.
As costs increase fewer people are able to afford hospital care or even medical aid cover. earned,”
The Council of Medical Schemes reported a 0.05% drop to 8.810-million scheme beneficiaries at December 31 2015 from 8.814-million at the end of the previous calendar year.
Netcare said that the stronger rand would negatively affect the conversion of the UK results in the consolidated group accounts.
Adjusted headline earnings per share (HEPS) for the first half of its 2017 year were expected to be 9%-13% lower than the adjusted HEPS of 91c reported for the first half of 2016 on the strong rand.
The group said results were also affected by a big reduction in revenues from industrial sites in Mozambique as economic difficulties curtailed activity in mining and resources.
Netcare said in its previous note that it expected earnings before interest, taxes, depreciation and amortisation margins to decline due to the potential effect of sizeable new “efficiency options” being introduced by medical schemes.
However, the uptake on these options had been lower than expected and the effect on margins in the first half of 2017 was expected to be minimal, it said. — TMG