Australia's largest private hospital operator, Ramsay Health Care (ASX: RHC), reported another strong result with net profit of $171.6 million for the six months to 31 December 2013, a 15.8% increase on the previous corresponding period. Group revenue increased by 13.9% and the company also announced a 17.2% increase in the dividend. Shares in the company closed almost 7% higher on the result.
To add to the good result, the group has updated its FY14 full-year profit guidance to increase by between 16% to 18%, up from previous guidance of 12% to 14%.
Ramsay Health Care Managing Director Christopher Rex said that the company had delivered another excellent result, driven by solid operating performance in all its business units across the world and buoyed by strong market fundamentals.
Ramsay Health Care's portfolio includes Australia's best and most recognisable private hospitals, which has led the company to deliver above-average returns on capital. The scale of the company enables it to offer the lowest cost private hospital experience and also gives the company strong bargaining power over private health-care providers.
Growth has been impressive in recent years, with net profit increasing from $104.8 million in 2011 to $142.7 million in 2013. The share price has increased an impressive 420% over the past five years.
Positive demographics and an aging population have continued to drive investment and capacity expansion. The company has invested more than a billion dollars in the last five years in order to further strengthen its strong market position. Newly completed projects are already contributing to the company's earnings and the company is continuing to receive upside from projects completed in prior years.
While overseas growth to date has been slow, a recent joint venture in Indonesia may provide a foundation to grow in southeast Asia, where demand for private health care is rapidly rising in line with increased wealth in the region.
Strong result, however, Ramsay Health Care looks expensive
Despite the positive result by the company and its long-term growth prospects, the shares are currently expensive, trading on a high PE of 38. Investors should consider other companies in the sector for exposure to the health care industry and an aging population.
Primary Health Care (ASX: PRY) released its 2014 half-year results which saw net profit after tax and earnings per share up by more than 8%. Primary Health Care provides investors with exposure to a portfolio of medical business that will benefit over the longer term from the rising demand from an aging population. With the shares only trading on 15 times earnings, the shares currently appear to offer better value when compared to Ramsay Health Care.
With the Australian dollar forecast to fall further during 2014, investors should also look at Australian healthcare companies with substantial offshore earnings, for example Cochlear (ASX: COH) and CSL Limited (ASX: CSL).
Foolish takeaway
While Ramsay Health Care has had a strong recent history and is set to continue growing earnings at a strong rate over the long-term, the current share price does appear expensive. Foolish investors should look for a pullback before investing.
Instead, investors looking to gain exposure to healthcare sector should look at Cochlear and CSL which currently offer better value and are set to benefit from a further fall in the Australian dollar.
