Economic Insights
Mediclinic's Delisting - Exploring exposure to other hospital groups on the JSE
Mediclinic has delisted from the JSE prompting many investors to consider how to invest their proceeds. There are currently two major hospital groups still listed on the JSE, namely Life Healthcare (LHC) and Netcare (NTC).
Recent results from both companies have shown a solid, continued rebound from Covid-19, with elective surgeries continuing to drive acute hospital occupancies and improved margins. The companies provide similar but divergent growth propositions for investors. Overall, we are still positive that certain industry dynamics will remain supportive like a continued recovery in elective surgeries, a focus on efficiency and margins, possible corporate action (in the case of LHC) and new growth areas like mental health (for NTC) and molecular imaging (for LHC).
The key risks for the healthcare industry globally remains regulation, affordability, cost growth and a shortage of key personnel (particularly nurses). South Africa carries the additional risk of an intensifying energy crisis and more frequent water disruptions.
Life Healthcare
Life Healthcare's geographic footprint spans across southern Africa, the United Kingdom and Europe.
In southern Africa, the group operates a hospital division and a healthcare services division. The hospital division includes acute hospitals and complementary services comprising of oncology, acute rehabilitation, renal dialysis, and mental health.
The international segment includes Alliance Medical Group (AMG) and Life Molecular Imaging (LMI). AMG is one of the largest independent imaging providers in the United Kingdom (UK) and Europe. LMI is a research and development pharma company focused on developing and commercialising molecular imaging agents for use in PET-CT diagnostics.
What we like about the company
What we don't like about the company
Netcare
Netcare operates the largest private hospital network in South Africa. The group also offers primary healthcare, sub-acute care, day surgery, occupational health, and employee wellness services through Medicross and emergency medical services through Netcare 911, as well as renal dialysis through National Renal Care and mental health and psychiatric services through Akeso. Netcare is a leading private trainer of emergency medical and nursing personnel in the country.
What we like about the company
What we don't like about the company
Recent Results
For the interim period ended 31 March 2023, Netcare delivered a solid set of numbers that were well guided for by management. Robust improvements in total PPDs and occupancies drove top-line growth towards the upper end of management guidance, with the group's margins benefitting from solid operating leverage and tight cost controls. The sustained improvement in activity levels also resulted in group revenue exceeding pre-pandemic levels, which was a key highlight. Management's outlook was for a stronger second half and we saw upgrades to analyst earnings forecasts after the print.
For its half-year print to 31 March 2023, Life Healthcare continued to see strong operational metrics across most businesses, which led to both revenue and EBITDA coming in ahead of expectations. However, the bottom-line took some strain because of higher debt levels and rising interest costs. The outlook statement was positive, with management guiding for a continued improvement in activity. The group continues to trade under a cautionary as it evaluates a recent unsolicited bid for its AMG business.
Valuation
