RHC +12.7%: jumped after its AGM and 1Q trading update, as the market finally saw some signs that the Australian hospital business is turning the corner, even while big questions remain over its troubled European assets.
The near-term good news is local:
- 1Q EBIT +5.8%, ahead of analyst forecasts, helped by:
- Better funding outcomes from private health insurers; and
- A pick-up in hospital activity, including more influenza-related admissions.
- Revenue up 6.5%, with admissions +2.6%, suggesting utilisation is grinding higher.
Ramsay reaffirmed guidance for earnings growth in Australia this year, despite cost pressures. The stock rallied back to around $35–36, clawing back roughly half the losses since August, when softer-than-expected margins spooked the market.
Importantly, several brokers are now leaning toward the view that Australian EBIT margins have likely bottomed, which has been the key uncertainty holding the stock back.
The problem remains their 53% stake in European group Ramsay Santé, acquired back in 2014. French hospitals have been under pressure from political and funding uncertainty, with public payors not keeping pace with cost inflation.
Similarly, the UK mental health business Elysium, bought for $1.4b in 2022, has also struggled, and today, Chair David Thodey admitted the offshore expansion had not delivered.
“The original idea was to leverage Ramsay’s hospital expertise overseas – but different regulatory environments have made that difficult, and “our ability to leverage internationally has not been proven out.”
The board has now put a clear timeline around the European business, deciding by February whether or not to exit. A sale at a reasonable price would be good, further simplifying the business.
- It was certainly encouraging to see an improvement in the local operations, and a clear time frame for addressing the French drag.
MM is bullish RHC
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