Stock pick: Tribeca Investment Partners

Ramsay Healthcare (ASX: RHC) is a global hospital group which operates nearly 250 hospitals across Australia, the UK and Europe. It is the largest private hospital group in Australia, accounting for more than a quarter of private beds and Australia accounts for a bulk of the group’s reported profits. It is also a market leader in France and Scandinavia via a joint venture with Credit Agricole.

RHC is far and away the best operator in Australia with industry leading operating margins, massive economies of scale and a reputation with doctors for running the biggest and best hospitals in the country. The share price is down more than 20 per cent since February as the market has worried about the imposition of the elective surgery shutdown due to COVID-19. However, we believe that this is clearly just a short-term event and the Government support program will even ensure Ramsay does not lose any money through this period.

At the current share price, we see an excellent opportunity to buy a quality business which will benefit from a true ‘V’ shaped recovery in demand, irrespective of pressures on the wider economy. The patients who have had their surgeries postponed are not going away. So, when the restrictions are lifted, which is likely to be announced soon given how well Australia has managed the pandemic, Ramsay will see more patients than ever supporting a rapid rise in profits.

In addition, after raising $1.4bn, the company is ready to take advantage of M&A opportunities which will surely arise as weaker providers in related healthcare fields have struggled with high debt loads. In particular, we foresee expansion opportunities for the group’s highly successful Australian health business.

The key risk is the longer-term structural headwinds from private health insurance affordability in Australia. However, this should be offset by an increased focus on health by the population post the pandemic. Other challenges come from negotiations with healthcare funds, particularly with Medibank, which could increase price pressure.

This information has been prepared and provided by Tribeca Investment Partners. To the extent that includes any financial product advice, the advice is of a general nature only and does not take into account any individual’s objectives, financial situation or particular needs. Before making an investment decision an individual should assess whether it meets their own needs and consult a financial advisor. This stock pick was published on 22 May 2020 and is subject to change.