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Ramsay Health Care Limited reports $288 million half-year profit

The Ramsay Health Care Limited (ASX: RHC) share price will be one to watch this morning following the release of its half-year results.

For the six months ended December 31, Australia’s largest private hospital operator posted core net profit after tax of $288 million on revenue of $4,400 million. This was a 7.5% and 3% increase, respectively, on the prior corresponding period and ever slightly below the market’s expectations. According to Bloomberg, the market had expected core net profit after tax of $290 million on revenue of $4,500 million.

Core earnings per share rose 7.8% to 139 cents and the board has elected to pay a fully franked interim dividend of 57.5 cents per share.

Ramsay’s Australia/Asia operations were the highlight of the half, delivering revenue growth of 4.3% to $2,500 million and earnings before interest and tax growth of 9.1% to $379.7 million. This growth was underpinned by a rapidly ageing and growing population and the increasing proportion of people with chronic disease and mental illness.

This strong performance managed to offset a disappointing performance from its UK and France-based hospitals which are operating in an environment that is currently experiencing pricing constraints and volume pressures

UK revenues fell 4.8% to £206.2 million and earnings before interest, taxes, depreciation, amortization, and restructuring/rent costs (EBITDAR) was down 4.6% to £49.4 million. While a positive tariff adjustment will take affect from 1 April 2018 in the UK, management has noted that NHS demand management strategies are currently impacting volumes significantly. However, this is expected to normalise again in the future due to a growing number of people waiting for treatment in the UK.

Revenues from its France segment fell 1.1% to €1,100 million, with EBITDAR falling a sizeable 5.8% to €194.1 million. Management advised that it is investing in a major transformation project in its French operations that will centralise non-core hospital resources and distinguish the business for the long-term.

During the half the Ramsay board approved a further $146 million in capacity expansions, complementing $57 million worth of brownfield developments completed late in the first-half and $147 million worth of developments set to open in the second-half.

Thanks partly to these additions and a positive operating environment in Australia, management has reaffirmed its full-year core earnings per share growth guidance of between 8% to 10%.

Should you invest?

Whilst I’m a huge fan of Ramsay, I wasn’t blown away by this half-year result and fear that the slight miss on the market’s expectations could lead to its shares dropping lower today.

I would suggest investors hold out to see if any post-earnings share price weakness drags its shares down to a lower and more attractive entry level. Until then, investors might want to consider CSL Limited (ASX: CSL) or ResMed Inc. (CHESS) (ASX: RMD).

Or perhaps even these non-healthcare star stocks which have the wind in their sails.

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Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia has recommended Ramsay Health Care Limited and ResMed Inc. 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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