Ramsay Health/RHC

RHC has been a disappointing position, for us.

We owned the stock into the bid, a few years back, and exited in the high $80’s. Once the deal fell over, the stock returned to the low $60s, and we re-established a position.

Since then the stock has tumbled down to the low $50s, as volume recovery was much slower than the market expected, and margins weaker. Private health insurance funds didn’t want to raise prices (which Ramsay needs to recover higher wages) and debt costs rose, making earnings much weaker than we expected. We didn’t expect PHI funds to not “play ball” and we didn’t expect RHC to struggle with productivity offsets (operational offsets) in response to weaker volumes.

Still, we’ve thought that the recovery would come, and that RHC had very high quality assets it could monetise (to pay down debt) or, failing that, another bid would arrive; as such, we didn’t exit the position.

Today’s trading update continues to point to this grinding recovery.

The Australian business continues to improve, with a reasonable step up in activity.

The below commentary, regarding PHI indexation and cost recovery, is management speak for “better than nothing”. Progress is progress, and because market expectations for progress are now so low, we regard this as good incremental news.

Both arms of the UK, hospitals and mental hospitals, are also improving. Ramsay Sante, the European/French arm, continues to struggle with getting reimbursement rates to acceptable levels.

Overall, grinding progress. Earnings are expected to be weighted to the second half,

The longer run demographics, aging populations, population growth, new therapeutic/treatments should see RHC continue to grow for many years to come, and efforts around digitisation and AI should help with cost efficiencies to drive margin.

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