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Date : 24/02/2023

Ramsay Health Care



Market Cap : $15.08 Billion

Dividend Per Share : $0.985

Dividend Yield : 1.45 %


52 Week Range : $55.73 - $88.58

Share Price : $67.91

RHC is progressing well in its recovery. 1H23 results shows surgeries are recovering. We maintain a 'Buy.'

Company Analysis

Another recession-resilient stock that is a part of our Top Picks for 2023, Ramsay Healthcare (ASX: RHC), delivered upbeat 1H23 results – beating market expectations. Consequently, the share price was up ~3%.

Ramsay is primed to benefit from a lot of pent-up demand for elective surgery across its operations in Australia, Europe, the UK, and Asia. Despite a recessionary cycle, Ramsay was primed to grow its earnings. This is exactly what transpired in the 1H23 result.

Revenues increased 13.6% on the pcp, gradually improving over the six months driven by an increase in surgical activity levels across all regions compared to the pcp reflecting the decline in COVID, the reduction in surgical restrictions and better management of COVID disruption as RHC adjusted to living with the virus.

Group EBIT improved 119.7% in Q2 over Q1 despite momentum temporarily slowing in December due to another wave of COVID. February has seen a return to positive momentum in surgical activity levels.

Statutory net profit after minority interests of $194.4m (up 22.3% on the pcp) includes a positive contribution from non-recurring items of $34.4m compared to a negative contribution of $33.1m in the pcp. The direct impact of COVID declined to immaterial levels in Q2, with these residual impacts expected to continue for the foreseeable future.

Operating cash flow increased 146.2% on the pcp, reflecting an improvement in the operating environment and the change in working capital.

Source: RHC

With a bullish performance, Ramsay declared a fully franked dividend of 50 cps, up 3% on the pcp. As the operating environment normalises, Ramsay expects its dividend payout ratio to be in the range of 60-70% of Statutory Net Profit. The record date for the interim dividend is the 7th of March, 2023.

Europe’s Recovery is Ahead of Australia

All of Ramsay’s regions experienced growth in surgical activity over the six months; this continued to be more heavily skewed to day surgery primarily because a large proportion of deferred surgery during COVID was lower acuity day surgery, and there has also been an acceleration of the trend towards day surgery in some elective specialities in France.

Non-surgical admissions have seen a more mixed picture, with France and the UK seeing some growth and Australia still seeing a slower recovery, particularly in mental health day patients. The changes in the mix compared to pre-COVID continued to impact margin recovery over the half.

The estimated direct impact of COVID on the results in Australia and the UK combined was $66.8m in the first quarter, and this declined to an immaterial impact in the second quarter.

3 Key Themes for Ramsay

The healthcare industry globally continues to be impacted by staff shortages and rising labour costs. Ramsay has implemented various initiatives gradually drive down vacancies in all regions. Recruitment and retention of employees remain a key focus. This is a sensitive area of the business that Ramsay needs to get right to service all the pent-up demand.

Ramsay continued to invest in its world-class hospital network and new and adjacent services. A further $179.2m was invested in brownfield, greenfield and growth projects, and $41.2m was invested in digital and data initiatives, driving growth in capacity to meet future demand and improve operating efficiency.

The company finalised new agreements with key private payors in Australia and the UK that reflect the current higher-cost environment. Ramsay continues to focus on improving productivity, efficiencies, and procurement benefits to mitigate cost pressures. The business is partnering with public health sectors under commercial contracts in all regions to assist with reducing backlogs and returning the system to the levels seen before the pandemic’s shocks.

Investment Thesis

We expect a gradual recovery in FY23 and a more pronounced recovery and normalised conditions in FY24.

Ramsay has invested approximately $3 billion since the start of CY2020 to expand and upgrade its facilities and broaden its service base. This investment is underpinned by tailwinds such as:

  • Demographic trends driving strong demand for healthcare services in western countries;
  • Advances in clinical practice improving patient outcomes and extending life expectancy;
  • The elective surgery backlog created by the pandemic, combined with an increase in demand for some non-surgical services; and
  • Increased Government focus on the importance of investment in maintaining strong, efficient healthcare systems

Ramsay is also accelerating investment in its digital and data strategy to deliver a more integrated patient experience, improved clinical outcomes and productivity improvements. Once complete, this strategy should directly play a role in boosting margins.

Underlying earnings growth for the remainder of FY23 will benefit from the additional capacity created over the last few years, combined with full-year contributions from Elysium and recent acquisitions in Europe. Capacity utilisation is subject to the ability to cover labour force shortages in critical areas, which is why Ramsay’s recruitment strategy is key.

Ramsay’s relationships with governments in each market have developed over the last few years. The company believes there are meaningful opportunities for the private sector to partner with governments. Given its global healthcare capabilities and proven reliability as a private sector operator, Ramsay is uniquely qualified to be a core healthcare partner.

What is the Market Pricing-in for Ramsay?

The outlook for Ramsay remains strong. The company’s world-class hospital ensures the business is well placed to take advantage of the positive long-term dynamics driving the healthcare industry. The path out of COVID is not expected to be smooth as the industry continues to be impacted by COVID combined with restrictive guidelines around the patient pathway, which, together with the resultant impact on workforce availability, may slow the pace of recovery in volumes and productivity. However, as the operating environment normalises, Ramsay said it would target a dividend payout ratio in the range of 60-70% of Statutory Net Profit.

Regarding what is priced in for FY23, market consensus expects Ramsay’s revenues to be around $14.9 billion – an 8% growth over pcp. As for NPAT, around $420 million is priced in, with an expected NPAT margin expansion from 2.02% to 2.82%.

Ramsay’s 1H23 numbers show it is tracking well and slightly ahead of schedule for a full year. The second half can also be associated with covid further abating around the world. This means elective surgeries backlogs can pick up further. Ramsay’s partnerships with the government should come in handy at this time – allowing the firm to service those backlogs and new surgeries. Therefore, we remain confident in Ramsay for FY23 following the interim results.

RHC shares are trading at a P/E of 36x for FY23. In the years ahead, RHC’s forward P/E drops to just 25x for FY24 and 21x for FY25. This drop suggests that the market believes Ramsay will fully recover in FY24 and normalise in FY25. However, there is an indication that Ramsay is ahead of schedule. The most telling indicators have come from the interim result that beat market expectations. A quicker-than-expected recovery will only result in another outperformance.

Technically, RHC’s share price has spent most of the last 8 years in a range of $60 to $84. As the pent-up demand for elective surgery is expected to increase volumes to above pre-pandemic levels during FY23 and FY24, we expect Ramsay’s share price to once again see the top of the range at $84 (the yellow line on the chart) in the next 12 to 18 months. As such, we think prices near $65 (the blue line) are attractive.

We recommend using the bottom of the range at $60 (the green line) as a stop loss level. From a technical analysis perspective, a confirmed break below this level would indicate significant bearish sentiment on the stock that significantly reduces the chances of share price appreciations in the medium term.


Ramsay is a blue-chip recovery play that is positioned well for FY23 and beyond. Increasing earnings, easing costs and labour shortages, and potential acquisition is the theme moving forward against a market in which companies are flagging slowing earnings, inflated costs, and sapping consumer sentiment. Hence, we believe Ramsay is a recession-resilient business. 1H23 results show that the recovery is tracking ahead of schedule as numbers beat market expectations. We expect positive performances from Ramsay as the company cycles through pent-up demand for elective surgery – underpinned by backlogs and new surgery demand. Valuations suggest Ramsay is modestly priced for a recovery cycle, and there is not much expectation from market participants. This allows for outperformance, such as the interim results, leading to increases in share price. We maintain our ‘Buy‘ recommendation.


Ramsay Health Care, Weekly Chart in Semi-log Scale (Source: Metastock)

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