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Ramsay’s results are just what the doctor ordered

Ramsay Health Care (ASX: RHC), which owns and operates private hospitals around the world, has reported a 5.5% increase in revenues to $4.2 billion and a 15.1% jump in core net profit after tax (NPAT) to $290.9 million. The group result was largely thanks to a solid performance from the Australian and Indonesian divisions which contributed revenues of $3.4 billion, up 6.8% and earnings before interest and tax of $418.2 million, up 11.2%.

Highlights from the results included growth in the Australian hospital margins to 17.9%, growth in Indonesian margins to 17.8% and growth in both the UK and French divisional margins. Ramsay continues to boost its assets, acquiring a 531-bed hospital in Toulouse, France during the year, opening the $133 million Joondalup Private Hospital in Perth and approving $200 million in organic capacity expansions to be undertaken at current facilities during the year.

Concerns over Ramsay’s relationship with Australia’s largest private health insurer have also been eased with the company announcing that it had resolved its differences with Medibank Private. While not providing any details, terms for a three-year agreement have been reached.

It has been a good reporting season for many of the listed medical service providers. Primary Health Care (ASX: PRY) reported 29% growth in earnings to $150 million, Sonic Healthcare (ASX: SHL) boosted profits by 6% to $335 million, while micro-cap Capitol Health (ASX: CAJ) reported 100% growth in underlying NPAT to $3.6 million.

Foolish takeaway

Ramsay reported 17.1% growth in core earnings per share (EPS) to 135.9 cents and the share price has since rallied to $35.15 after the results were released, placing the stock on a hefty 25.9 times FY2013 earnings.

With the company boosting the full year dividend by 17.5% to 70.5 cents and forecasting growth in both core NPAT and core EPS of between 12% and 14% for the FY2014 it is understandable that the company trades at a premium to the market; however whether such a high premium is justified is debatable.

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Motley Fool contributor Tim McArthur owns shares in Primary Healthcare.

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