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2 Health Stocks For Investors To Follow – Ramsey And Sonic

Timothy Anderson

Timothy Anderson is a contributor with the Australian Stock Report and is currently in his final year of studying a Bachelor of Applied Economics and a Bachelor of International Relations and Politics at the University of Canberra. Tim has a genuine passion for economics, specifically in macroeconomic analysis including how certain macroeconomic policies and indicators affect financial markets and the economy, as well as how these factors affect personal investment strategies. Tim currently holds RG146 Tier 1 Generic Knowledge qualifications.

Ramsay Health Care Ltd (ASX: RHC)

Ramsey Health Care Ltd (Ramsey Health Care) is a global health care company mainly operating private hospitals. Ramsay has 480 facilities across 11 countries, which makes them one of the largest hospital health care companies globally. Ramsay’s main markets are Australia, the United Kingdom and Continental Europe. Its market capitalisation is around A$14.9 billion.

 

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What has happened to Ramsay Health Care’s share price recently?

Ramsey Health Care was trading at a February 2020 high of around A$80.00. Since then, the share price has dropped around 17% and is currently trading at A$68.90.


What has been happening to Ramsey Health Care’s operations recently?

The COVID-19 pandemic has resulted in the suspension of most elective surgery in each of Ramsay Health Care’s major operating geographies and led to an uncertain operating environment. In effect, the private hospitals are supporting public hospitals in managing the increase in hospital patients associated with COVID-19.

In response to this challenging operating environment, Ramsey Health Care announced an equity raising of A$1,200 million in new equity via an underwritten institutional placement and an additional A$300 million via a non-underwritten share purchase plan. This was completed today.

Ramsay health Care has also decided to temporarily suspend dividend payments. No indication is provided when these payments may resume. Further, Ramsay has provided no earnings guidance for the second half of FY20.

Ramsay Health Care expects that these initiatives will enable it to strengthen its balance sheet and increase financial flexibility in an uncertain operating environment and position Ramsay for future growth opportunities.

In some recent positive news over the last week, Ramsay Health Care’s management have made several agreements with NHS (National Health Service) England, Western Australia, Queensland, Victoria to make its facilities and services available during the COVID-19 pandemic. Ramsay Health Care has also entered into a Binding Heads of Agreement with NSW health to make its facilities and services available during the COVID-19 Pandemic.


What is the outlook for Ramsey?

Even though in the short-term Ramsey Health Care has been negatively affected due to COVID-19, over the long-term Ramsey is expected to perform well.

Regarding the outlook for Ramsey Health Care’s specific markets, revenue growth in continental Europe is strong with 44% growth in HY20. Revenue growth in the United Kingdom is sound with 8.7% growth in HY20. Revenue growth in Asia is sound with 13.6% growth in HY20. This growth may be subdued in the coming months but is expected to continue over the long-term.

In Australia, Ramsay is on track to complete in FY20 approximately A$168 million worth of hospital projects including 197 beds (144 net beds), three operating theatres and 85 consulting suites. In addition, two other major hospital projects will complete in FY21. This investment will underpin growth in Australia in coming years.


Sonic Healthcare Ltd (ASX: SHL)


Sonic Healthcare (Sonic Healthcare) is a leading provider of medical diagnostic services (pathology and radiology). It has a dominate position in the Australian market and has established a large presence in the United States and German markets and, to a lesser extent, the United Kingdom, Switzerland, Belgium, and New Zealand markets. Sonic Healthcare has a market capitalisation of A$13 billion.


What has happened to Sonic Healthcare share price recently?

Sonic Healthcare was trading at a February 2020 high of around A$32.00. Since then, the share price has dropped around 14% and is currently trading at A$27.87.


What has been happening to Sonic Healthcare operations recently?

Sonic Healthcare announced that the company is withdrawing its earnings guidance for FY20 due to the level of uncertainty resulting from COVID-19. Sonic Healthcare’s management notes that after 8.5 months, Sonic Healthcare’s trading results are consistent with the earning guidance previously provided. However, as populations in Sonic Healthcare’s markets self-isolate or are quarantined, diagnostic testing volumes have been impacted in the short term.

Sonic Healthcare is on the front line in Australia, United States and Europe testing thousands of patients daily for COVID-19. Sonic Healthcare has been working closely with the company’s major supplies to ensure that the company’s supply chain is not material hurt by the spread of COVID-19.

Sonic Healthcare has a strong balance sheet, with almost A$1 billion in cash and committed credit facilities currently available (prior to payment on 25 March of the FY20 Interim Dividend of approximately A$162 million). None of Sonic’s debt facilities are due to mature until CY 2021. This puts Sonic Healthcare in a strong financial position to see out the COVID-19 outbreak.


What is the outlook for Sonic Healthcare?

The long-term outlook for Sonic Healthcare is positive. Sonic Healthcare reported positive earnings results in HY20 with NPAT being up 14% and revenue being up 15%. Sonic Healthcare business is diversified amongst several markets with future growth opportunities expected through acquisitions, joint ventures and contacts, which should increase revenue in the coming years.

In addition to revenue growth, management continues to identify and implement efficiency improvements across the whole business which has enabled both the Global Laboratory Division and the Imaging Division to expand margins.


Overall thoughts about the health care sector

The health care sector in Australia has performed very well over the last decade. One main reason for this is that Australia has an aging population. This has caused demand for specialised health services to increase. However, this is not just specific to Australia, with several Western and Asian countries are experiencing the same trend. Therefore, investors that want exposure to this trend and the health care sector in general could consider following Ramsey Healthcare and Sonic Healthcare.


 

Disclaimer:

This article has been prepared by the Australian Stock Report Pty Ltd (AFSL: 301 682. ABN: 94 106 863 978)
(“ASR”). ASR is part of Amalgamated Australian Investment Group Limited (AAIG) (ABN: 81 140 208 288 Level 13, 130 Pitt Street, Sydney NSW 2000).
This article is provided for informational purpose only and does not purport to contain all matters relevant to any particular investment or financial instrument. Any market commentary in this communication is not intended to constitute “research” as defined by applicable regulations. Whilst information published on or accessed via this website is believed to be reliable, as far as permitted by law, we make no representations as to its ongoing availability, accuracy or completeness. Any quotes or prices used herein are current at the time of preparation. This document and its contents are proprietary information and products of our firm and may not be reproduced or otherwise disseminated in whole or in part without our written consent unless required to by judicial or administrative proceeding. The ultimate decision to proceed with any transaction rests solely with you. We are not acting as your advisor in relation to any information contained herein. Any projections are estimates only and may not be realised in the future.
ASR has no position in any of the stocks mentioned.

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