Ramsay Health Care was one of our picks heading into the earnings result on Thursday. The result came in ahead of market consensus.
RHC delivered a good 1H19 result which demonstrated the Australian business continues to achieve decent revenue growth.
We view the stock price as full value now at $65
Shares of RHC have been edging higher as investors respond favorably to their recent AGM on Tuesday.
With respect to their Capio AB acquisition, management continues to target overall positive core growth of up to 2% in FY 2019.
With the share price at 22X present earnings, we would have liked to seen a higher rate of expected core growth to sustain a rally from current levels.
RHC remains under an ALGO sell signal but we expect the $51.00 level to show solid support and an ALGO buy signal in the medium-term.
Ramsay Health
Ramsay Healthcare remains in a Algo Engine “sell” condition, however, after the share price correction from $85 to $52, we now see value beginning to emerge.
Shareholders in Swedish hospitals group Capio have given the approval to RHC’s 51% owned French subsidiary A$1.3bn takeover offer, to proceed.
With all conditions now satisfied, the deal’s expected settlement will be early next month.
Watch for RHC to turn positive and generate an Algo Engine buy signal in the coming months.
RHC
Ramsay Healthcare reported FY18 results in-line with market consensus, however, the FY19 guidance was below expectations.
Underlying earnings increased 7% in FY18 and that growth rate is likely to slip to 4 – 5% in FY19. With the stock on a forward yield of 2.7% we see further downside risk to the share price in the short-term.
RHC is a high quality business and we’ll be watching for the next Algo Engine buy signal.
Material earnings benefits from new hospital projects are expected in the coming years; we see both Healthscope and Ramsay Healthcare as long-term value plays with a defensive yield.
Buy Healthscope today and remain patient for the entry condition into Ramsay.
Shares of Ramsay Heath care are down over 2% to $53.30 in early trade.
Last Friday, the private hospital group announced an unsolicited offer for almost a $1 billion to take over Capio AB, a European healthcare company.
Over the weekend, the Capio board unanimously rejected the deal.
Over the last 2 months, the RHC share price has dropped over 16%. Most of this negative sentiment is based on the company’s admission that earnings growth will contract from 8% to 5% over the next year.
At current prices, we see RHC on a 2.9% dividend yield. As such, we consider the stock near fair value and would look to acquire it at lower levels.
Ramsay Health Care
Shares of RHC are down about 20% year to date.
Changes in government funding and regulations have been a headwind for the private health sector, in general, and on RHC, specifically.
However, recent industry research is estimating RHC EPS growth to reach 8% for FY 18 and then rise to 10% for FY 19.
At $58.20, the stock is trading at 18.7 X 12 month forward EPS.
We see scope for the share price to reach $74.50 over a 12-month time horizon.
Ramsay Health Care
Shares of RHC remain under pressure and have posted a 6-month low of $62.50 in early trade.
This is on top of yesterday’s 5.75% drop after a weaker profit report.
RHC, Australia’s largest private hospital operator, reported a 3.7% fall in H1 profit to $246 million; most of the weakness is from hospital operations in the UK.
From a technical perspective, the daily price chart shows solid support in the $61.50 to $61.20 area dating back to June 2016.
We’ll update our signals on RHC and look for a reasonable level to enter the stock.
Ramsay Health
A key part of the US Tax Reform passed last week includes giving US companies a tax break on profits earned and kept in banks overseas.
As per the legislation, US firms can now repatriate offshore earnings at a tax rate of 15.5%, compared with the previous rate of 35%.
In 2005, the Bush administration had a similar “tax amnesty” when over 50 US firms sent back about $350 billion in profits earned overseas.
In an interview last week, Mr Trump estimated that the total amount of US corporate profits on deposit offshore is between $3 and $5 trillion.
This is a pretty wide spread. But considering that just 5 tech firms (Apple, Microsoft, Google, Cisco and Oracle) are estimated to be holding over $650 billion offshore, it’s clear that the repatriation numbers will be much higher than in 2005.
In fact, Apple CEO, Tim Cook, announced that they intend to repatriate over $250 billion during 2018, which is over 70% of the 2005 total spread across 50 firms.
The most obvious impact of this massive transfer of funds will be the boost in demand for US Dollars. The amnesty plan in 2005 triggered a 12% rally in the USD Index from 81.00 to over 90.00 from March to July.
However, with some EU and Japanese banks already teetering from bad debts and non-performing loans, the short-term implications could be devastating to the banks that have been holding the cash that Mr Trump wants back.
We believe that with just one company like Apple draining $20 billion a month from the European banking system, there will be a negative impact on the health of many EU banks.
At this point we don’t have any clear numbers reflecting the amount of money being held in Australian banks, but we would expect the general strengthening of the USD, on a global basis, will see the AUD/USD retreat back into the lower .7000 handle.
ASX listed stocks which will benefit from the lower Aussie dollar include RHC, QAN, TWE, RIO and NCM.
Aussie Dollar
Last week’s Merger and Acquisition activity was a key driver in the Aussie dollar’s move from .7510 to .7690.
Tuesday’s Westfield deal for AUD 32 billion combined with Zurich’s announcement that it will buy ANZ’s life insurance business for AUD 2.85 gave the local currency a bid tone for the week.
All together, the flow was about $9 billion of AUD/USD that needed to be bought to cover the hedging aspect of the M&A transactions. This was enough to push the AUD/USD to .7690 before offers capped the move.
With this buying support absorbed into the market, the technical picture in the AUD/USD looks to be weakening with the longer-term down trend the path of least resistance.
We see the next area of support in the .7565 area. A break of the December 11th low at .7510 could trigger a quick move back to the .7300 handle.
Some of the ASX stocks that would benefit from a lower AUD include: RHC, NCM, QAN and TWE.
Ramsay Health
Newcrest Mining
QANTAS
Treasury Wine Estates
The Aussie Dollar dropped close to 1% overnight as yesterday’s domestic trade balance numbers showed a steep contraction for the month.
The AUD/USD hit a six-month low at .7500 as the trade surplus fell to $105 million from $1.6 billion the month before. The street had expected a surplus of $1.4 billion……10 times higher than the actual print.
The sharp drop was driven by a 3% fall in exports and a 2% increase in imports. Details of the report showed much lower levels of exports of Iron ore and coking coal.
There are several names on the ASX that earning revenue overseas and will benefit from the falling Aussie Dollar.
These include QAN, RHC, TWE and NCM.
QANTAS
Ramsay Health Care
Newcrest Mining
Treasury Wine Estates
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