Australia has been a successful breeding ground for many great healthcare companies that have grown from humble beginnings. The best example is blood group CSL Limited (ASX: CSL), which has developed into a truly global force over 30 years and rewarded shareholders spectacularly over that time.
Another example is globally-diversified private hospital operator Ramsay Health Care Limited (ASX: RHC), which has returned 3,200% to shareholders over the last 15 years.
But what about smaller Australian firms Sonic Healthcare Limited (ASX: SHL) and Primary Health Care Limited (ASX: PRY)? They operate alongside Ramsay Healthcare in the global healthcare space by providing pathology and diagnostic imaging services in hospitals and a range of medical centres.
Size
Primary and Sonic's combined market cap of $9.5 billion is less than that of Ramsay, but their services reach the majority of Australians. Primary operates 87 medical centres and has a presence in a further 161 public and private hospitals, while Sonic operates over 200 centres and 100 dedicated diagnostic imaging services.
Dividends
One of the biggest advantages of Sonic and Primary is their surprisingly large dividend yield. While Ramsay only generates a 1.7% yield, Sonic is trading on a trailing 3.8% yield and Primary at 4.6%. Both companies generate a significant amount of free cashflow which indicates that the dividend payouts will be sustainable and hopefully growing in the future.
Growth
Sonic has the most attractive growth prospects of the two. Sonic's exposure to seven other countries, including the UK and Germany, means that the company is better shielded from a local economic downturn and exposes the group to strong growth internationally. Sonic's revenue grew by 12% in 2014, while Primary's rose by only 5%. EBITDA lifted by 5.5% for Sonic vs 4.7% for Primary.
In FY15, Primary is guiding to EBTIDA growth of between 3% and 6.5%, compared to Sonic's 5% estimate. Analysts' estimates indicate that the market has more faith in Sonic outperforming than Primary.
Should You Own Them?
Investors should definitely have some exposure to the growing healthcare industry.
