Ramsay Health Care
Recommendation
There is much to like about Ramsay Health Care. Not least of which is that private health insurance premiums rise every year (get ready to pay 5.6% more from 1 April). Ramsay’s hospitals are benefiting from the pain to your pocket as Australia’s ageing and increasingly health-conscious population demands their money’s worth from private health insurance.
The company has been making hay during the sunshine. Good management and favourable tailwinds lifted underlying net profit by 41% between 2010 and 2012. At the recent half-yearly result, Ramsay upgraded its 2013 profit growth forecast to 13-15%. Net debt has fallen from $1.4bn to $1.1bn since 2010 as hospital expansions have increased free cash flow.
The problem with success is that it breeds the expectation of more to come. At the results presentation, managing director Christopher Rex outlined a 20% long-term growth target. It’s very aggressive and, in the long-term, a mathematical impossibility.
You can be sure international acquisitions are coming – probably big ones. Ramsay is currently the fourth-largest private hospital operator in the UK and has made known its interest in acquisitions there.
While Ramsay’s share price performance over the past decade has been staggering, there is no room for error now. On a 2013 prospective price-earnings ratio of 24 and an enterprise value/earnings before interest and tax multiple of 16, the stock looks expensive. AVOID.