3 reasons why I'd buy Ramsay Health Care Limited shares today

Here's why Ramsay Health Care Limited (ASX:RHC) has investment appeal.

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The private hospital industry offers significant growth prospects for Ramsay Health Care Limited (ASX: RHC). Not only will it benefit from an ageing population, but Australia's largest private hospital operator has growth potential through its acquisition strategy. Further, its increasingly dominant position within the fragmented private healthcare space makes me bullish on its long term prospects.

Market share

I believe that Ramsay will increase its market share in the private hospital industry over the medium term. That's because it is a fragmented industry which contains a number of non-for-profit organisations. They find it challenging to absorb the ever-increasing costs of staffing which is subject to annual pay increases. At the same time they lack the scale to successfully negotiate higher funding rates from insurance companies.

This is in contrast to Ramsay. It has size, scale and a competitive advantage versus its smaller peers. Ramsay constantly reinvests in its well-known hospitals to not only improve the facilities and services on offer to patients, but to create a competitive advantage versus sector peers in terms of their standard of care and technology. This provides leverage when Ramsay negotiates funding rates with insurance companies, since patients will often prefer to visit a Ramsay hospital which is at the forefront of medical care.

Ageing population

An ageing global population provides growth opportunities for a wide range of healthcare companies including CSL Limited (ASX: CSL) and Cochlear Limited (ASX: COH). In Ramsay's case, its focus on developed economies such as the UK, France and Australia increases its exposure to this opportunity.

In Australia, the proportion of the population which is aged over 65 is forecast to double from 12.5% to 25% over a 40-year period. Among people aged 85 and over, the growth rate is even more dramatic. There were 300,000 Australians aged 85 or over in 2002. There is forecast to be 1.1 million by 2042.

People aged over 65 and 85 are also living longer. This means that the prevalence of chronic illnesses is likely to increase. This will put pressure on public healthcare services and could mean that demand for private healthcare rises. Ramsay is already the biggest private healthcare provider to the NHS in the UK and this dominant position could become even stronger over the long run.

Acquisitions

Ramsay's acquisition strategy has strengthened its position in key markets such as France. Its track record of successful integration shows that further acquisitions could create additional synergies. Ramsay's balance sheet offers scope for higher levels of leverage, given its stable income stream. For example, its net debt to equity ratio was 152% in financial year 2016. Further, Ramsay's net operating cash flow covered interest payments 6.9 times in the 2016 financial year, while operating profit covered debt servicing costs 6.1 times in the same year.

Outlook

In my view, Ramsay is an excellent growth stock. It benefits from a demographic tailwind, an increasingly dominant position within key, developed markets and it has an acquisition strategy which could positively catalyse earnings. It could help you to turn $10,000 into $8,000,000, just as this man did.

Motley Fool contributor Robert Stephens has no position in any stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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