About Ramsay Health Care Limited

Ramsay Health Care Limited (Ramsay Health Care, the Group, ASX: RHC) is Australia’s largest private hospital operator with 74 private hospitals. It listed on the ASX in 1997 and employs over 88,000 people globally, across 8 countries, with eleven million admissions/patient visits to its facilities in over 510 locations. Ramsay Santé (52 percent ownership) is the second largest private healthcare provider in Europe, while in the UK Ramsay has a network of 34 acute hospitals and day procedure centres. Its UK operations also include Elysium Healthcare which provides hospitals and care homes for individuals with mental health conditions.

FY24 earnings update

Ramsay Health Care expects to report FY24 Net Profit After Tax from continuing operations in the range of $265 – $270 million. This is slightly down from its FY23 result of $278 million. The profit estimate excludes the after-tax cash profit of $618 million from the sale of Ramsay Sime Darby, the Group’s joint venture with Malaysian conglomerate Sime Darby. The joint venture owned and operated four hospitals in Malaysia and three in Indonesia.

Among other items excluded from the anticipated FY24 profit outcome are non-recurring impairments of hospital sites in France and the UK of approximately $29.5 million after tax.

Potential FY25 earnings uplift catalysts

On the positive side, there is the potential for favourable developments to emerge when the audited full-year FY25 profit result is announced on Friday 30 August.

Investors will be looking for an indexation uplift in the form of increased contributions from health insurers and governments globally to compensate Ramsay for general and health-specific inflation which has occurred over the past several years. Hospital admissions are growing at around 5 percent annually but these higher admissions when combined with annual tariff uplifts and indexation rises are driving revenue at 7.8 percent on a constant currency basis. These numbers imply that with industry-specific inflation consistently tracking at around 6 percent or more, higher indexation increases from private health insurers and government payors globally are justified and necessary to catch up with past inflation. Governments depend on a financially sustainable and viable private healthcare sector to provide critical infrastructure to achieve optimal healthcare outcomes for patients.  This imperative may see Ramsay negotiate new and increased ‘catch-up’ terms from insurers and governments and any such announcement in the FY25 outlook statement should be immediately positive for the share price.

Investors will also be looking for clear evidence that labour productivity and operating efficiencies that improve returns on hospital facilities around the globe are progressing. For example, one such productivity enhancement initiative being rolled out is Ramsay’s Digital Front Door which is a single entry into the Ramsay ecosystem for patients, doctors and teams. The system provides advanced digital capabilities in connection with clinical communications that keep teams connected which improves productivity and patient safety. The system has been rolled out to about 30 sites with additional capability across the Group. Less agency usage for temporary labour as normalisation of labour and supply price increases return once inflationary pressures gradually moderate, should also improve future returns across the hospital portfolio.

Hospital portfolio rationalisation

Ramsay has shown that it can develop greenfield and brownfield sites to strengthen its core hospital presence as opportunities arise and will divest under-performing assets when it is appropriate to do so. Higher construction costs, and higher interest rates and slow approval process times have slowed down Ramsay’s existing pipeline of greenfield and brownfield projects. Any sign that conditions have eased so that Ramsay can continue to strengthen its hospital portfolio will be well received by the market. This includes lower interest rates that will support margin recovery and earnings growth.

Management have previously referred to the need to improve performance and returns from Ramsay’s French hospitals business, Ramsay Sante. A commitment from the French government to negotiate an improved multi-year tariff agreement may alleviate some of the under-performance of Ramsay’s earnings from its French operations. Any improvement to the French government’s funding arrangements for private hospitals should prove value accretive and may see Ramsay divest their 52 percent equity stake in Ramsay Sante.

In a recent filing by Ramsay Sante on the European financial markets platform Euronext, Ramsay Sante noted that despite higher hospital admissions to March 2024, EBITDA decreased by 1.2 percent, mainly impacted by lower government subsidies, and increased gap between government tariff increases and inflation of the cost base. The divestment of Ramsay’s 52 percent stake in Ramsay Sante, should it eventuate, would be a positive share price catalyst for Ramsay Health Care.

Looking ahead

Rising healthcare expenditure as a proportion of GDP and a growing and ageing population and associated rising incidence of chronic health conditions mean that private healthcare providers like Ramsay will have a critical role to play in supporting the healthcare system. This includes establishing commercial solutions in partnership with governments to maintain living standards. This structural growth, and improved fee indexation with health funds and government payors to catch up with past inflation combined with productivity improvements from labour management and cost saving initiatives should support higher earnings growth for Ramsay Health Care shareholders.

Further details of the FY24 result and the FY25 outlook will be provided with the release of Ramsay’s FY24 full year result on 30 August. The potential for any adverse news now being negligible, the FY25 outlook statement may contain positive narrative that supports a higher share price.