Ramsay Health Care Limited upgrades profit guidance: What you need to know

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Shares in Australia’s largest private hospital operator Ramsay Health Care Limited (ASX: RHC) have traded higher on Thursday after the company reported another strong set of interim profit figures and announced an upgrade in full year earnings growth to between 15% and 17% from a previous guidance range of 12% to 14%.

Here are the highlights from the first half results:

  • Group revenue leapt 24.9% to $4.2 billion
  • Group earnings before interest and tax (EBIT) increased 12.7% to $425.9 million
  • Core net profit after tax expanded by 16.2% to $237.4 million
  • Core earnings per share increased 16.9% to 114.1 cents per share (cps)
  • An interim dividend of 47 cps fully franked has been declared representing an increase of 16%

With operations spanning Australia, Asia, the United Kingdom and France there are a number of divisions which investors also need to analyse.

The divisional results showed Australian revenue and EBIT grew by 7.4% and 9.4% respectively. An equity accounted share of Asia joint venture profits of $4.4 million were received; UK revenue and EBIT increased 2.7% and 9.3% respectively, while France revenue and EBIT increased 57.2% and 16.5% respectively.

Foolish takeaway

As Ramsay’s CEO Mr Christopher Rex noted:“The future impact of the baby boomers moving into the 70 plus age group is going to substantially impact utilisation of hospital services in Australia, but also throughout the world, over the next two decades. With our strategically located portfolio of quality hospitals, Ramsay health Care is well-prepared for this future demand and will continue to invest in our facilities to meet the needs of the communities they serve. Utilising our global experience in acquiring and integrating hospitals, we will continue to canvas opportunities in new and existing markets.”

Ramsay’s performance and growth potential certainly continues to impress the market and as such the stock trades at a premium. That premium arguably continues to be justified, however, investors do need to be careful about owning a stock which is priced for perfection. Likewise, relying on relative valuations gets more dangerous when high multiples are involved, as can be seen by the similarly lofty multiple which peer Healthscope Ltd (ASX: HSO) trades at.

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Motley Fool contributor Tim McArthur has no position in any stocks mentioned. Unless otherwise noted, the author does not have a position in any stocks mentioned by the author in the comments below. 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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