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Date : 19/01/2023

Ramsay Healthcare

ASX :

RHC

Market Cap : $15.41 Billion

Dividend Per Share : $0.97

Dividend Yield : 1.44 %

Buy

52 Week Range : $55.73 - $84.58

Share Price : $67.75

Ramsay is positioned to benefit from pent-up surgery demand, leading to earnings growth. We recommend a 'Buy'.

Company Analysis

Ramsay Healthcare is a globally diversified healthcare giant operating in 10 countries, including Australia, Europe, the UK, and Asia. Ramsay’s 450+ facilities cater for a range of healthcare needs, from day surgery procedures to complex surgery, as well as psychiatric care and rehabilitation – seeing around 8 million patient visits every year worldwide.

Ramsay is one of those rare stocks that still has not recovered from the pandemic. Its share price is depressed due to the failed takeover attempt from private equity giant KKR, and we see an opportunity.

Ramsay is recession resilient that will see its earnings grow in 2023

Firstly, healthcare is a sector that is associated with being inflation-proof, non-cyclical, and, most importantly – recession resilient. Ramsay is all of the above. The reason why RHC shares have not recovered is because of Covid-19’s impact. Ramsay makes most of its money from elective surgeries, and due to the pandemic, all non-critical surgeries have been pushed back. This impacted its earnings, leaving the share price depressed.

Now, Ramsay is in a position where they are significantly benefiting from the pent-up demand for elective surgeries. Additionally, the waiting lists for surgeries at public hospitals are only becoming longer, and we think this will directly translate into private hospital volumes. Aiding this theme is the fact that many more people are adding private health insurance because of what Covid-19 brought about. We have now entered a slowing economic environment; however, Ramsay is positioned to grow its earnings considerably as it works through years of backlogs and fresh demand. This makes Ramsay a high-quality recession-resilient business.

Easing labour shortages and inflation will also ensure Ramsay manages its costs. The business also continues to invest in its facilities footprint to attract new doctors and clinical staff to drive improved market share in the recovery.

Lastly, we have already seen Ramsay being targeted by private equity groups. The previous bid was $88, and given the significant property that the company holds, Ramsay Healthcare will always be subject to private equity interest, which could once again catapult the share price.

Increasing earnings, easing costs and labour shortages, potential acquisition. We believe Ramsay is well-positioned for 2023.

How to play Ramsay’s Stock?

RHC’s share price broke the downtrend (the red trendline on the chart) after the company provided a trading update indicating that the decline in COVID cases in the community has improved its trading conditions. It also said it expects growth in volumes over the medium to long-term.

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

 

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