Ramsay remains in rude health
The Montgomery funds have emerged from reporting season with a new investment – Ramsay Health Care (ASX: RHC). Ramsay is one of the top private hospital operators in the world. It’s been a stellar performer on the ASX and, in its recent financial report, signalled more solid growth to come.
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Daniel
:
Hi Ben,
Well done on the article. There is a lot of potential for Healthscope and Ramsay Health Care. I’d also like to add that from 2000 to 2050 the proportion of people over the age of 60 will double from 11% to 22%. This makes it a huge opportunity for investors to get in now. Wouldn’t you agree?
Steve Baron
:
Does the net debt/equity not concern you Ben?
Ben MacNevin
:
Hello Steve,
RHC is a highly cash generative business, and its cash flows are stable and predictable. This allows the company to take on leverage and gradually pay it down. Management publishes its leverage ratio in every presentation – RHC took on considerable debt in FY15 to fund the acquisition of Generale de Sante, but its leverage ratio is gradually declining.
Ben
Keith Love
:
Hi Ben
This is an interesting stock selection if looked at solely on the basis of intrinsic value and current Margin of Safety (-43%) ?
regards
Keith
Ben MacNevin
:
Hello Keith,
I believe you are referencing a Skaffold valuation, which is a separate entity to Montgomery Investment Management. Skaffold valuations incorporate historical performance and consensus forecasts, while MIM has a team of analysts that conduct deep research on a company to gain greater insights into future prospects.
Ben
Wayne A
:
You’re right about the “rude” health Ben. With recent headlines suggesting many people are reconsidering private health insurance in this country, the international expansion may become increasingly important. Compounding increases of circa 7 percent every year, if continued, mean that it will eventually become unaffordable for most. All the carrots and sticks in the world can’t change the mathematics. The CEO should get by on his roughly 60 times average earnings remuneration package though.
While they are far from being alone , companies like this that depend so much on the public purse while showing impressive and enviable growth figures year after year must attract the unwanted critical gaze at some point. The likes of Ramsay and McMillan are perhaps not so much great businesses as great rentseekers, and ethics aside, one has to wonder how long it can continue.
Ben MacNevin
:
Hello Wayne,
These are valid points. A key part of our investment thesis is that the Private Hospital operators are more efficient than the Public System, and as the pressure grows from rising health care costs, stakeholders will favour the most efficient operators. Of the ~$60 billion in Hospital expenditure each year, around 75% is spent in the public system and 25% is in the private system. This is starting to play out with the NSW Government announcing tenders to private operators to manage and develop public assets.