Greying population is gold for investors

An ageing population and rising healthcare costs are good news for these companies

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Shareholders toasted the good financial health of Primary Health Care Limited (ASX: PRY) yesterday on the back of a strong profit report.  The medical centre and pathology operator reported revenue and operating margin gains across all its divisions.  This included a 5% increase in revenue to $1.4bn and Net Profit (after tax) of $116.6m.

It was a solid result, but what really set investor hearts a flutter (and arguably triggered the 12% jump in Primary Health Care’s share price), was the news that earnings per share (EPS) for the coming financial year to June 2013 is forecast  to leap 20% -25%.  With GDP forecast to grow around 3.25% in 2013 according to the government budget, this is a weighty declaration and one that is likely to prompt some renewed investor interest in the healthcare sector.

One company many of those eyes will be trained on next will be vaccine and anti-venom producer CSL Limited (ASX: CSL) who announce their full year results next week (22 August).  CSL have been a stellar performer in the health care industry, chalking up compounded EPS growth in the range of 26% over the last 10 years.  However investors will no doubt be looking for signs of negative impact from the strong Aussie dollar with the company earning most of its revenue offshore.

Primary Health Care’s positive growth forecast reaffirms that the healthcare sector is well poised and ready to take advantage of the increasing number of grey (or in some cases, balding) heads of  aging populations here and overseas, but it won’t be without a few aches and pains along the way. This was proven earlier this month by hearing implant manufacturer Cochlear Limited (ASX: COH), who reported a large additional cost of $101m after the recall of faulty implant devices.  Time will tell if its reputation has suffered long term from the episode.

Shareholders in other healthcare operators such as private hospitals operator Ramsay Health Care (ASX: RHC) will be hoping the good news flows their way.

Foolish takeaway

Primary Healthcare has delivered on solid growth and looks set to continue the trend going forward.  Investors may be toasting the golden outcome, but with a 56% profit margin eyebrows are sure to be raised by the government questioning if they are truly getting the best value for their Medicare dollars.

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 Motley Fool contributor Regan Pearson doesn’t own shares in any companies mentioned in this article. The Motley Fool‘s purpose is to help the world invest, better. Take Stock is The Motley Fool’s free investing newsletter. Packed with stock ideas and investing advice, it is essential reading for anyone looking to build and grow their wealth in the years ahead. Click here now to request your free subscription, whilst it’s still available. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

 

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