Over the past 12 months, the diverse healthcare operator has rallied ~70% with the lion’s share of the gains down to a significant re-rate in the PE multiple the market is prepared to pay for them. When we originally bought HCA for the International Equities Portfolio 11 months ago, it was trading on 10x FY22 projected earnings rendering it around ~13% ‘cheap’ versus its longer-term averages. There was a reason for the discount, insofar as earnings were set to decline in FY22 before a recovery in FY23 and beyond. That recovery is playing out which has prompted a more positive stance from the market, driving its multiple up to 15x FY23 projected earnings, which is now ~18% above its 5-year average. While this is a long way below local operators (Ramsay Healthcare is on 27x), the structure of the healthcare system is more fragmented in the US, HCA is the largest and only accounts for ~5% of hospital services.
We often talk about elastic bands stretching in both directions and this is certainly a valid example of that.
- We are intending to sell HCA US to lock in a 70% gain on our position.
MM is neutral HCA US ~$US290, intending to sell our position
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