Was Ramsay’s Chris Rex really worth a billion dollars?
Ramsay Health Care produced a great result for the first half of FY17 and kept its tradition of upgrading full-year guidance. The market should have received this result well, particularly in light of weak industry activity, were it not for one bit of unexpected news – the retirement of CEO, Chris Rex.
Rex, who has been with Ramsay for 22 years, 9 of which as CEO, announced his retirement at the half-year result. While Ramsay’s share price opened higher on the day of the announcement, the price then fell 8 per cent in the first hour, but closed 3 per cent lower at the end of day.
While it’s difficult to attribute specific reasons to share price movements, this announcement would have gone some way in causing the share price weakness on an otherwise good result.
So what value does the market ascribe to Chris Rex? Well the fall of 8 per cent reduced Ramsay’s market capitalisation by $1.2 billion, but the market capitalisation fall at the end of the day was around $500 million.
Much has been made of Ramsay’s CEO remuneration in the past (the CEO has previously been dubbed the $100 million man), but it’s difficult to argue with the returns that were generated under his tenure.
Since Chris became CEO in 2008, Ramsay has grown into the fifth largest hospital operator in the world. Core earnings per share increased from $0.60 in 2008 to $2.31 in 2016, which is a compound annual return of 18 per cent. Meanwhile, Ramsay’s market capitalisation grew from $1.5 billion to $14 billion today.
While it would be flattering to have your worth measured in this way, it’s important to realise that Ramsay is more than just one individual. Ramsay Health Care is a great company that has achieved consistently strong performance, in no small part because of the high levels of service provided by its 60,000 staff. Ramsay’s commitment to quality care, prospects with new markets and exposure to favourable demographic trends will not decline with Chris’s departure.
Au revoir Chris, et merci beaucoup.
Montgomery owns shares in Ramsay Health Care.
This post was contributed by a representative of Montgomery Investment Management Pty Limited (AFSL No. 354564). The principal purpose of this post is to provide factual information and not provide financial product advice. Additionally, the information provided is not intended to provide any recommendation or opinion about any financial product. Any commentary and statements of opinion however may contain general advice only that is prepared without taking into account your personal objectives, financial circumstances or needs. Because of this, before acting on any of the information provided, you should always consider its appropriateness in light of your personal objectives, financial circumstances and needs and should consider seeking independent advice from a financial advisor if necessary before making any decisions. This post specifically excludes personal advice.
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