The Ramsay Health Care Limited (ASX: RHC) share price will be on watch on Thursday following the release of the private hospital operator's half year results.
Here's a summary of how Ramsay performed in the first half compared to the prior corresponding period:
- Revenue increase 14.9% to $5.1 billion (6.1% excluding Capio).
- EBITDA up 9.8% to $728.6 million (7.2% excluding Capio).
- Core net profit after tax up 1% to $290.8 million (1.8% excluding Capio).
- Core earnings per share up 1.2% to 140.6 cents.
- Interim dividend up 4.3% to 60 cents fully franked.
- Outlook: Reiterated core EPS growth guidance of up to 2%.
What were the drivers of the result?
The Australia/Asia segment was the star performer during the period with Australia revenue growing 4.8% to $2.6 billion. EBITDA grew 5.7% to $484.6 million during the half. This was driven by volume growth and an ongoing focus on achieving operational efficiencies.
Over in the United Kingdom the company saw its revenue rise 1.6% to £209.6 million. Unfortunately, EBITDAR fell 9.2% to £44.8 million. Management advised that "while Q1 was challenging and impacted overall earnings for H1, we saw good recovery in NHS volume growth in Q2." It is optimistic this improvement will be maintained in the second half.
The Continental Europe segment delivered a 25.7% increase in revenue to €1.3 billion and a 19.1% lift in EBITDAR to €231.3 million. This was driven largely by the acquisition of the Capio business during the half. Excluding the acquisition, segment revenue would have been up 2.5% and EBITDAR would have lifted 5.3%.
Outlook.
Ramsay's managing director, Craig McNally, appeared cautiously optimistic on the company's outlook.
He noted that positive signs are emerging in the UK in respect to price and volume growth but warned that Brexit could pose some challenges in the short term.
In Australia Mr McNally admitted that there are short term challenges for the sector, but believes the long term outlook is positive.
Ramsay has reaffirmed its FY 2019 core EPS growth guidance of up to 2%, barring unforeseen circumstances.
Should you invest?
Based on Ramsay's guidance, I estimate that its shares are changing hands at 22x forward earnings. Given its current growth profile and outlook over the medium term, I think this makes its shares expensive.
In light of this, I would sooner buy healthcare shares such as CSL Limited (ASX: CSL) and ResMed Inc. (ASX: RMD) instead of Ramsay, unless its shares dropped back enough so they were trading at around 17x forward earnings.
