Ramsay set to prosper from pent-up demand

Jun Bei Liu

Tribeca Investment Partners

Ramsay (ASX: RHC) is the largest private hospital operator in Australia and a leading provider in France, the UK, and a number of Nordic countries. It has a long history of delivering steady growth supported by an ageing demographic. We like the business because it is well-positioned to prosper from pent-up demand for health services as the world recovers from COVID.

The results

The operating results in FY21 were largely as we expected with domestic operations reporting a good recovery (all states well above pre-pandemic revenues except for Victoria). 

The offshore operations were mixed, as we expected given challenges from the pandemic, but the result held up thanks to Government support.

Management outlined an ambitious capital expenditure program with spending of $1b likely for the next few years. This will support expansion programs across the group’s global hospital portfolio and in time should provide a clear boost to growth. We expect this will position Ramsay to gain share through the period of recovery post-COVID.

Near-term results from Ramsay will inevitably be hit by the lockdowns in Australia. In particular, Ramsay is the largest hospital group in Sydney and hence earnings in the current period will inevitably go backwards. 

This should be partially offset by better numbers from Europe and the UK where vaccination rates are higher and hence a period of recovering earnings is expected.

Where to from here?

The medium-term outlook for Ramsay is extremely attractive, particularly as we observe more private health insurance participation around the world as a result of the pandemic which in turn will drive structural demand for private hospital services. 

At the current share price, Ramsay is trading at 24x earnings which is a substantial discount to its peer group such as Resmed at over 40x. Cochlear at over 60x and CSL at over 40x. 

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Jun Bei Liu
Lead Portfolio Manager Alpha Plus Fund
Tribeca Investment Partners

Jun Bei Liu is the Portfolio Manager of Tribeca’s Alpha Plus Fund. Since taking over sole responsibility for managing the Fund, she has quadrupled AUM to over $1.1bn, making it one of the largest long short equity funds in the Australian market....

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