The Ramsay Health Care Limited (ASX: RHC) share price has taken a tumble this morning and finds itself down 6.5% to $67.14.
Despite the release of a strong half-year result and increased full-year guidance, investors appear to have reacted negatively to news that managing director and chief executive officer Chris Rex intends to retire this year.
Here's what you need to know:
- Revenue up 3.5% to $4.3 billion on the prior corresponding period (Up 7.6% in constant currency).
- Core net profit after tax up 12.8% to $267.8 million.
- Core earnings per share up 13% to 128.9 cents.
- Interim dividend of 53 cents per share fully franked, up 12.8% on the prior corresponding period.
- MD and CEO Chris Rex to retire this year after nine years in the top job.
Overall I feel this was a strong result from the leading private hospital operator. The company's Australia/Asia segment was the highlight in my opinion.
Despite the volatility in the market the company posted an 8.8% increase in segment revenue to $2.4 billion. Management believes the strength, attractiveness, and locations of its hospital portfolio was key.
Elsewhere its UK-based operations recorded a 6.8% jump in revenue to £217.3 million and its France-based hospitals generated revenue €1.1 billion, up 6.6% on the prior corresponding period.
Earnings before interest, taxes, depreciation, amortisation, and restructuring or rent costs (EBITDAR) in the two countries grew 2.4% and 6.5% respectively. UK profit growth slowed due to a shortage of nursing staff and the subsequent reliance on agency staff in the country.
What's next?
Management appears confident that the demand for healthcare will remain strong for the foreseeable future thanks to an ageing and growing population, clinical innovation, and increasing consumer expectations.
In light of this and its strong first-half result, management has upgraded its full-year guidance for core net profit after tax and core earnings per share growth. Management now expects growth of 12% to 14% in FY 2017, compared to previous guidance of 10% to 12%.
Is it a buy?
Whilst a change in CEO can cause investors to get nervous, I feel confident that the company will replace Mr Rex with someone equally as capable. Pleasingly Mr Rex will stay with the company during a transition phase once a successor is appointed.
So despite the shake-up I expect it will be a case of business as usual moving forward. Because of this I believe the drop in its share price today is an opportunity for investors to buy its shares at a more reasonable price.
They may not be cheap at 28x trailing earnings, but I feel the tailwinds the healthcare industry is experiencing at present will result in solid long-term growth for Ramsay. So for this reason I would class its shares as a buy and recommend it ahead of rival Healthscope Ltd (ASX: HSO).
