Ramsay Health Care Limited (ASX: RHC) is the largest operator of private hospitals in Australia, with a market capitalisation of $14 billion.
It also has hospitals in other countries such as the UK, France, Malaysia and Indonesia. Its global network makes it one of the top five biggest operators of private hospitals in the world.
Ramsay has been a remarkable investment for shareholders who bought 10 years ago. In that time the share price has grown 574% and the dividend has grown by 396%.
With all that growth, is Ramsay still a good investment? Here are three reasons why I think it is:
Aging population
The number of people over 65 and 85 is projected to grow strongly over the next decade. The older they get the more likely they will want or need to use a hospital for surgery.
Ramsay is also going to start rolling out pharmacies in locations near its hospitals, this is great way to add to and diversify its sales.
Geographical diversification
Healthcare businesses are partially at the mercy of the government to provide funding. If the government reduces funding, it can cause big changes to the outlook of a business – just look at what's happened to Estia Health Ltd (ASX: EHE).
Ramsay has hospitals in several other countries, therefore if Australia's government reduces funding to Ramsay it still has its overseas operations that wouldn't be affected by the reduced funding.
The global reach of Ramsay also means it has the opportunity to grow into other countries such as China and this would create a large additional growth runway.
Monopoly effect
When businesses are able to create a monopoly, or an economic moat, it puts them in a powerful position. Consumers have to use their product because it's by far the cheapest, best, or because it's the only option.
Governments decide who will operate a hospital. Once it's built, there isn't going to be another hospital built within a certain distance therefore the hospital has a monopoly on the local area.
This is a very strong advantage for Ramsay to have.
Time to buy?
Ramsay is probably never going to trade at a cheap valuation compared to the rest of the market. It will however, at times, be cheap when compared to itself.
It's in a constant battle with private health insurers like Medibank Private Ltd (ASX: MPL) to reduce costs as it's a delicate balance to keep Ramsay's profit margins high, whilst also appeasing the private health insurers' margins on claims.
Ramsay's share price is down 13% compared to the all time highs two months ago, it's trading with a price/earnings ratio of 33 with a grossed up dividend yield of 2.33%. It's not a bargain, but I think Ramsay will make a good long term buy for Foolish investors at this price.
