Shares in private health operator Ramsay Health Care Limited (ASX: RHC) have touched 3-month highs of $70.98 this morning as the stock continues its post AGM bullish run.
Ramsay had been sold off sharply after releasing its annual result in August with its 2018 guidance failing to meet some expectations.
The market had become fearful of a further cut in its growth outlook at its AGM following a recent APRA publication that showed a reduction in private health participation. Fortunately, management reaffirmed its 2018 guidance for an 8%-10% growth in core earnings per share and the stock has rallied from the $64 level.
Ramsay is well diversified internationally with operations in Asia, Australia, France and the UK.
Australia remains the crown jewel in its portfolio and is the most profitable segment. Volume growth is expected to continue in Australia due to the ageing population and the recently announced reforms of private health insurance coverage should see a recovery in participation rates.
Ramsay intelligently adds capacity to existing hospitals and uses its scale to deliver operational efficiencies that increase margins resulting in the company outperforming competitors such as Healthscope Ltd (ASX: HSO). The company is also aggressively expanding into the pharmacy sector via its pharmacy franchise network which now boasts 55 retail pharmacies.
2017 was a difficult year for Ramsay's European operations as it battled tariff reductions with EBITDAR in France and the UK only rising 0.6% and 1.8% respectively. FY18 earnings in France and the UK are projected to be flattish but with UK tariffs scheduled to increase from April 2018, FY19 earnings should increase. The company's leverage ratio has declined to 2.2 which leaves room for acquisitions.
Foolish takeaway
2017 has been an underwhelming year for Ramsay shareholders as the company's share price has underperformed the broader market. Long term shareholders should not be overly concerned as the company's total shareholder return has averaged 23.4% over the last 10 years.
It remains well positioned to meet the growing demand of the ageing baby boomer generation and the proliferation of chronic diseases will place increased pressure on public health systems. The stock is fairly priced as it trades on 24 times forward earnings and is one to accumulate on dips to hold for the long term.
