Health shares ailing as costs cut growth
IN uncertain times, investors turn towards defensive stocks such as healthcare, where prospects aren’t as dependent on the overall economic cycle as retail shares.
However, it’s an investment ethos that has recently provided little benefit to South Africa’s medical groups.
Over the past year, all three of the JSE’s listed hospital groups suffered deteriorations in their share price, staining the princely status of these stocks.
Netcare declined by 22%, Life Healthcare is down 19% and Mediclinic, the largest hospital group, has seen its shares tumble 25%.
In comparison, the All Share has climbed 3.21%%.
Analyst at Gryphon investments Casparus Treurnicht explained that under the local economic climate managers have seen limited opportunities locally and healthcare companies have been looking offshore for expansion and growth.
Subsequently, healthcare services had been hit by the falling pound while the local economy negatively affected medical aid subscriptions.
As disposable income declined, people downgraded their medical aid plans or dropped them altogether.
“It’s funny how these factors always come together at the same time,” said Treurnicht.
A recent report from US banking group JP Morgan expects lower volumes from South African hospitals as a result of stagnating medical scheme growth, concerns over affordability and regulatory risks.
Industry players have been hit by a variety of market-related factors which have led to these defensive stocks plummetting.
Administration costs and other non-healthcare expenditures contribute to the increase in hospital fees to which medical aid and gap cover costs are added for consumers.
The exorbitant cost of private healthcare continues to negatively affect patients’ pockets and those with the budgets to stay on have been slapped with double-digit increases of between 10% and 11.9% this year by most major open medical aid schemes. DIFFICULT PATH: Both patients and healthcare shareholders are taking pain from South Africa’s economic problems
Inflated increases in medical aid costs coupled with a sluggish economy have led to stagnating membership numbers. As costs increase, fewer people are able to afford hospital care or medical aid cover.
The Council of Medical Schemes reported a 0.05% drop to 8.810 million scheme benedependant ficiaries at December 31 2015 from 8.814 million at the end of the previous year.
In its health publication, Diagnosis 2016-17 , corporate healthcare consultancy Alexander Forbes highlighted that the number of principal members in the top 10 open medical schemes had stagnated since 2013 while numbers were lower, reducing the subsidy benefits that young, healthy people usually provide for older people in need of greater medical care to a scheme’s pool of funds.
Despite a 1% drop in patient days at the country’s largest hospital network, Netcare’s April trading update revealed that revenue for the group had risen 7.7% for the first half of the 2017 financial year.
PWC’s medical trends 2017 report said that in the early 2000s price and utilisation had pushed growth in healthcare costs. Since then, use of services had declined and higher prices were driving growth.
Private healthcare strives to align itself with quality care and that means importing state-ofthe-art equipment.
This is regardless of the region’s poor operational environment and barriers to accessing healthcare.
BMI Research medical device analyst Ethel Kuntambila said sub-Saharan Africa had limited manufacturing capabilities so most medical equipment was imported from Europe, the US or Asia.
Director at Econex Marin Rasmus said that because hospital groups imported a great deal of equipment they were directly afvestments. fected by exchange rate fluctuations.
Over the past five years the rand had weakened more than 73% and a weak rand made imports more expensive.
The hospital groups’ earnings continue to be affected by the dilutive effect of interest costs on the funding of international in- Difficult regulation, political instability and unpredictable conditions contribute to the challenges of having global operations and affect the overall attractiveness of healthcare companies.
But risk does come with its rewards. Mediclinic, which has been faced with regulatory and other challenges in Abu Dhabi, received a boost on Tuesday when co-payment for holders of Thiqa medical insurance cards was waived by Abu Dhabi’s crown prince, Sheikh Mohammed bin Zayed al-Nahyan.
Abu Dhabi introduced the 20% co-payment system in July 2016, five months after Mediclinic acquired Al Noor Hospital Group for about £1.5-billion.
The company, which remains confident about long-term growth opportunities in the Middle East, expects performance in the region to improve in the year ahead.
It’s funny how these factors always come together at the same time The weak rand hurts importers of state-of-theart medical equipment