Ramsay Health Care (Ramsay) is Australia's largest private hospital operator, capitalised at more than AUD 14 billion. Ramsay operates 223 hospitals and day surgery facilities, employs more than 60,000 staff, and manages more than 25,000 beds. Ramsay generate strong returns on capital due to its ownership of the best and most recognizable private hospitals within Australia.
The population demographics in Australia are expected to support long term growth for private hospital operators. In 2015 there were 10.2 million hospitalisations (nearly half the population) and two of every five (41% or 4.2 million) were into private hospitals. Between 2010 and 2015 the number of private hospitalisations increased by 4% per annum – exceeding population growth of 1.6% per year. During the same period, the number of private hospital beds increased by an average 2.9% per annum. In addition, private hospitals accounted for 60% of surgical admissions in 2015.
Funding is the big issue for private hospitals that are majority funded by health insurance and out-of-pocket payments by patients. Nevertheless, funding for private hospitals increased by an average 5% per year between 2010 and 2015, while the proportion of funding provided by the Australian Government decreased from 33% to 30%. While this is a desirable outcome for the government and one that they will continue to encourage, the increased burden must fall on patients and their insurers who are all price sensitive.
Ramsay trades on an average P/E of 28.9, which does not vary on a material level from its competitors. They are a growth company who achieve strong levels of earnings growth by reinvesting 46% of their earnings. Ramsay Health Care recently confirmed indicative core earnings per share growth of 10 – 12% for the 2017 financial year.
Contact your advisor to find out whether Ramsay Healthcare is an appropriate investment for your portfolio.