During today’s Annual General Meeting (AGM) hospital operator Ramsay Healthcare (ASX:RHC) wrapped up the financial year 2015 and reaffirmed that it is on track to deliver 12-14% growth in core earnings per share (EPS) for FY16.
International Expansion and EPS Growth for FY16
Managing Director Christopher Rex captured the spotlight at the AGM and as always investors paid close attention to managements FY16 outlook. Ramsay emphasised that it will continue to focus on international expansion as it “will continue to canvas opportunities in new and existing markets.” Ramsay aims to utilise its global experience to acquire and integrate new hospitals in order to expand its international footprint, according to MD Christopher Rex.
In conclusion management reaffirmed that it is on track to deliver EPS growth of 12% to 14% for its core operations. Ramsay is confident that the industry fundamentals are “strong” and that the company will be able to continue to implement its “successful growth strategy.”
FY15: A Strong Year for Ramsay
As at the end of FY15 Ramsay owned and managed 212 hospitals across five countries with approximately three million patients per year. At the current share price Ramsay’s market cap is close to $13bn. During FY15 the company experienced strong organic growth across its global portfolios with improved EBITDA margins and total revenue of $7.4bn. Almost 50% of its revenue is generated overseas which is subject to foreign exchange movements. With a relatively low Australian Dollar the impact was favourable during FY15.
Wise-owl’s Take: Favourable Outlook, Inflated Share Price
There are many reasons to be bullish on Ramsay Healthcare which is reflected in its price to earnings (P/E) multiple of ~35. Investors are willing to pay a significant premium for the hospital operator as double-digit future earnings growth is expected. Amid strong performance of Australian healthcare stocks, Ramsay’s share price has gained ~12% year to date and is up ~21% over the past 12 months.
The industry fundamentals are favourable as more than 10% of the global population are now over 65 years and therapeutic innovations are expected to drive healthcare demand. Worldwide population growth and healthcare improvements in emerging countries provide growth opportunities for companies like Ramsay.
However, the healthcare industry is “priced to perfection” and with price to earnings multiples of 30 and beyond, Ramsay’s upside appears limited in the medium-term. Investors who don’t mind holding on to their stocks for 10 years+ should not be overly concerned, however it is currently hard to justify a buy rating from a valuation perspective. The share price appears inflated and Wise-owl will wait for a downturn in sentiment before adding additional healthcare positions to our virtual portfolios.
Author: Simon Herrmann
Nov 12, 2015
Simon is a financial analyst at independent research firm Wise-owl specialised in small-mid cap growth opportunities and ethical investment opportunities. Simon's aim is to disrupt the cliché approach to investment decision making as he believes that socially and environmentally responsible behaviour is a necessity to long-term wealth creation. Simon has a deep fundamental understanding of the global financial landscape and has compiled 300+ research reports, valuations and corporate appraisals. Simon is commonly featured in major media outlets and his research is published weekly in The Australian.