- Private hospital operator Ramsay dominates domestic markets and is growing internationally, particularly in Europe.
- By delivering NHS work more efficiently in the UK, Ramsay has become a preferred provider.
- Platypus has a sell price of above $60 which means there’s still growth in the stock if you buy today.
How long have you held Ramsay Healthcare?
We have held Ramsay Health Care (RMC) since November 2010 and our current weighting is 4.5%.
What do you like about it?
Ramsay is a leading private hospital operator in Australia, with impressive offshore divisions as well. The company has consistently delivered growth for over a decade, outperforming both in Australia and in tough offshore markets such as the UK.
In addition to being a market leader in the domestic market, Ramsay has significant growth potential in new geographies. The company has recently substantially grown its business in France and, through its joint venture with Sime Darby, intends to expand its operations into new markets across Asia.
The pressures on public healthcare spending in geographies where Ramsay operates, together with ageing populations, will continue to drive demand for private health services such as Ramsay’s. Therefore, this business is well positioned to continue to deliver growth through greenfield and brownfield expansion opportunities, as well as through acquisitions.
How is it better than its competitors?
Ramsay is a clear market leader in the Australian market, demonstrated not only through its size and quality of its assets, but also its high operating margin.
Ramsay has consistently delivered margin improvements in Australia through running a number of initiatives such as directly sourcing consumables, reducing exposure to agency nursing staff, and continuing to improve its facilities through successful brownfield expansion strategy. Ramsay has led in each one of its strategies and as such its operating margin is higher than that of its competitors.
In addition, Ramsay has managed to maintain its margin in the very tough UK market. It has been successful in delivering NHS (National Health Service) outsourced work in a more efficient manner and did not suffer from a downturn in private patient volumes during tough economic times. Ramsay is now a preferred NHS provider, while some of its competitors are now just starting to explore that strategy.
What do you like about its management?
Ramsay’s management has demonstrated it can deliver growth above its competitors through a number of initiatives that are ahead of its peers. Namely, Ramsay has run a successful brownfield expansion strategy for a number of years while Healthscope, its closest competitor in the Australian market, is just starting to explore that opportunity.
Similarly, in the UK, Ramsay’s management positioned the company to benefit from a large volume of NHS outsourced work. This work is lower price than private, elective work; however, the demand growth is more stable and as such Ramsay did not suffer from a reduced volume growth like a number of its competitors that operate in purely private segment. Ramsay management has demonstrated that Ramsay is a very efficient operator as it has been able to deliver steady, reasonably strong margin even when relying on lower price NHS work.
In addition, Ramsay’s management has run a very successful cost out strategy, such as starting to directly source its consumables, reducing the number of suppliers and negotiating better supplier terms, reducing its agency staff costs, etc. Therefore, Ramsay has been able to deliver leading returns for a number of years.
What is your target price on Ramsay?
Our price target for Ramsay is in low to mid $60s.
Ramsay Health Care Limited (RHC)
Source: Yahoo!7 Finance, 20 November 2014
At what point would you sell it?
Ramsay is one of best quality growth stocks with defensive characteristics as well. The company is in a unique position as a growing reliance on the private sector to deliver health services, combined with an ageing population, will continue to deliver strong demand growth for Ramsay services for a number of years. We would only sell Ramsay if some external factor, such as government policy change, resulted in a reduced demand outlook.
How much has it added to your overall portfolio over the last 12 months?
In the last 12 months Ramsay has added 18 basis points to our portfolio.
Is it a liquid stock?
Yes, but Paul Ramsay Family Trust still holds 34%.
Where do you see the value?
We believe that Ramsay will continue to deliver value through its brownfield expansion opportunities, greenfields as well as public private partnerships. Developed countries are all facing growing budget pressures, in particular from healthcare spend that is forecast to grow above economy growth projections. Therefore, we believe there will be more initiatives such as NHS outsourcing to private sectors across geographies where Ramsay operates. Ramsay, as a market leader and most efficient operator in most of its geographies, is in an excellent position to benefit from this growth in demand.
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