The Ramsay Health Care Limited (ASX: RHC) share price will be one to watch this morning following the release of its half-year results.
For the six months ended December 31, Australia's largest private hospital operator posted core net profit after tax of $288 million on revenue of $4,400 million. This was a 7.5% and 3% increase, respectively, on the prior corresponding period and ever slightly below the market's expectations. According to Bloomberg, the market had expected core net profit after tax of $290 million on revenue of $4,500 million.
Core earnings per share rose 7.8% to 139 cents and the board has elected to pay a fully franked interim dividend of 57.5 cents per share.
Ramsay's Australia/Asia operations were the highlight of the half, delivering revenue growth of 4.3% to $2,500 million and earnings before interest and tax growth of 9.1% to $379.7 million. This growth was underpinned by a rapidly ageing and growing population and the increasing proportion of people with chronic disease and mental illness.
This strong performance managed to offset a disappointing performance from its UK and France-based hospitals which are operating in an environment that is currently experiencing pricing constraints and volume pressures
UK revenues fell 4.8% to £206.2 million and earnings before interest, taxes, depreciation, amortization, and restructuring/rent costs (EBITDAR) was down 4.6% to £49.4 million. While a positive tariff adjustment will take affect from 1 April 2018 in the UK, management has noted that NHS demand management strategies are currently impacting volumes significantly. However, this is expected to normalise again in the future due to a growing number of people waiting for treatment in the UK.
Revenues from its France segment fell 1.1% to €1,100 million, with EBITDAR falling a sizeable 5.8% to €194.1 million. Management advised that it is investing in a major transformation project in its French operations that will centralise non-core hospital resources and distinguish the business for the long-term.
During the half the Ramsay board approved a further $146 million in capacity expansions, complementing $57 million worth of brownfield developments completed late in the first-half and $147 million worth of developments set to open in the second-half.
Thanks partly to these additions and a positive operating environment in Australia, management has reaffirmed its full-year core earnings per share growth guidance of between 8% to 10%.
Should you invest?
Whilst I'm a huge fan of Ramsay, I wasn't blown away by this half-year result and fear that the slight miss on the market's expectations could lead to its shares dropping lower today.
I would suggest investors hold out to see if any post-earnings share price weakness drags its shares down to a lower and more attractive entry level. Until then, investors might want to consider CSL Limited (ASX: CSL) or ResMed Inc. (CHESS) (ASX: RMD).
