When it comes to companies that have done an outstanding job of creating shareholder value over many years, Ramsay Health Care Limited (ASX: RHC) is certainly a stock which comes to mind.
Over the past 10 years, the total shareholder return (a measure of share price growth plus dividends received) has been outstanding at 24% per annum.
Meanwhile, the compound average growth rate per annum in operating revenue, earnings per share (EPS) and dividends over the last 17 years has been 21.7%, 16.6% and 16.5% respectively.
Even excluding dividends, the long-term growth in the share price alone has been superb. Over the last 16 years the stock has gained a whopping 3,976%; in comparison the S&P/ASX 200 (Index: ^AXJO) (ASX: XJO) has climbed just 77% over the same time frame.
With a track record such as this, Ramsay should certainly be a business of interest to long-term investors but of course it is the future performance of the business which matters from this point on.
Here are four reasons to put Ramsay on your watch list:
- Organic Growth: The demographic tailwind of an aging and growing population, coupled with an increase in chronic disease and new technologies for business improvement to its existing portfolio of assets are all areas of organic growth for the group.
- Brownfield Expansion: The demand for health care services has provided the opportunity for Ramsay to invest over $1.5 billion in capacity expansion over the last nine years. What's more, the company has earmarked a further $1 billion in brownfield expansion opportunities over the next five years.
- Public-Private Collaborations: Ramsay sees opportunities to undertake partnerships with governments to develop, manage and provide hospital services under public-private partnerships.
- Acquisitions: The group has already proven its ability to successfully expand into foreign jurisdictions with Ramsay already operating in four countries other than Australia. Management has stated that it has identified potential acquisitions in both existing and new markets which given the track record of integrating acquisitions should be welcome news for shareholders.
In a presentation to investors this week, Ramsay reaffirmed its guidance for EPS growth of between 18% and 20% this financial year. For a company with a market capitalisation of $12.5 billion and already a long history of double-digit growth, to achieve growth rates of around 20% today is outstanding and a reason to keep a close eye on the company for any opportunities to buy the stock.
