Stock updates: RHC, CGC and VCX


Noting the flagged acquisition of Spire (UK hospital operator) by RHC (Ramsay Health Care), a stock in our direct equity portfolios.

Firstly, we are pretty happy. Using the strength in the AUD to expand their assets in the UK makes sense. Secondly, RHC have a pretty strong track record as capital allocators. They gear up, establish a beachhead (the Nordics, the UK, Asia) and grow to scale, as shown below.

Thirdly, the rationale, of attempting to take NHS backlogs, makes sense, as does the estimates of synergies (which arise from procurement harmonisation, scale and scope, as well as the “hub and spoke” network for things like pathology and diagnostic imaging).

It will take quite some time for the various regulatory reviews to conclude, however, at first glance, we are comfortable with the undertaking.


Costa Group, which grows and sells berries, fruit and vegetables, is topical today due to a fairly material downgrade. (CGC is not in our portfolios.)

Consensus estimates were for a 1H at c$60m, and management guidance today indicated it will be closer to $43m. That’s a fairly massive miss, and large enough to cause a mix of ire/anger/scepticism from the analyst community, as it really suggests poor or unreliable communication.

Our main observations were that a) the cashflows have been weak following a large period of capex and b)…

…that valuations were pretty punchy coming into today. A big earnings miss, combined with a elevated multiples, is a recipe for a decent sell-off, which is what happened.

Note “punchy” here is two fold, firstly, several measures like forecast (BEST) price-sales, forecast (BEST) price-cashflows were high, and the measures that, visually at least, looked low like price-earnings (historical) were still over 30x earnings, for a cyclical, weather affected fruit company.


Noting the Melbourne lockdowns. Vicinity Centres has most of its REIT portfolio located in Victoria, and, being a shopping mall landlord, relies on foot traffic. Ergo, the lockdown isn’t great. However, there are no moratoriums on rent, at the moment, and landlords will be doing their level best to ensure that the pain of no-sales falls on the tenant, rather than on them. An unpleasant situation, and despite what we just wrote, there really are no winners in such a scenario.

However, the stock is very cheap, and that cheapness provided us with a buffer for exactly this sort of downside risk. We continue to see it as a worthwhile Quality Value exposure within the portfolio.

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