The Ramsay Health Care Limited (ASX: RHC) share price has fallen by 7.7% today after announcing write-downs and a profit downgrade for FY18.
Investors have turned sour on Ramsay for some time, with the private hospital operator down significantly since its high above $81 in 2016.
Ramsay reported that it was having problems in the UK due to NHS demand management strategies, which seriously affected volumes even though wait times are increasing despite a positive tariff adjustment in April 2018.
Although $125 million of write-downs isn't good, nor a reduction of profit guidance, it must be taken in the context that Ramsay is still predicting core profit growth of 7% for FY18. A lot of Australia's blue chips would love to report that kind of underlying profit growth in a couple of months' time.
Managing Director Craig McNally reminded investors that Ramsay is committed to growth through acquisitions and is currently investigating a range of opportunities that would complement its current portfolio.
Ramsay is also investing in brownfield expansions that will contribute to long-term growth for the business. In the long-term the ageing tailwind should continue to boost Ramsay's earnings.
However, in Australia the current environment around private health insurance affordability could mean continuing slow growth in procedural work and inpatient admissions. FY19 could also show disappointing growth.
Every business will have a hiccup or two, but considering Ramsay is trading with a price/earnings ratio of at least 20, it isn't cheap. I recently compared it to HCA Healthcare in the US which only has a p/e ratio of 14. They are both exposed to growing populations and ageing tailwinds.
Foolish takeaway
I'm not suggesting Ramsay is going to fall another 30%, but in a rising interest environment it's quite possible that a very defensive business like Ramsay could continue to see its valuation contract.
I am a fan of Ramsay, which is why I own shares. I will be holding onto my shares for the long-term, however I won't be buying any until at least the report in August. If its share price dropped below $50 then I'd be pretty interested.
