The Ramsay Health Care Limited (ASX: RHC) share price is down 19% over the past year, is it a buy?
Ramsay is one of the largest private hospital operators in the world with major networks of facilities in Australia, France and the UK prior to its Capio acquisition.
The fall in the share price is perhaps justified with the rising unaffordability of private health insurance causing private admission growth to stutter. Younger people subsidise older policyholders for the system to work. However, the rising overall cost of the system is forcing the young people out, whilst growing number of older people is costing the system.
Ramsay management are hoping that the Capio acquisition can turn around sentiment. Ramsay described Capio as a leader in value-based healthcare, digitalisation and specialisation. It also provides a gateway for further acquisitions in the Nordic countries.
Capio has operations in Norway, Sweden, Germany, France and Denmark adding 189 facilities and over 5 million patients per annum to the group. Ramsay paid a fairly high price for Capio, but management think it will be accretive to core earnings per share (EPS) within two to three years.
However, I think it will take more than an acquisition to turn things around. Ramsay is only forecasting growth of up to 2% for FY19 despite $242 million of capital investment becoming operational including 216 extra beds, 30 consulting suites, 15 operating theatres and 1 emergency department.
It's true that Ramsay is exposed to a helpful tailwind of ageing demographics which should lead to steadily rising patient numbers. However, there's no guarantee that private hospitals will get most of the benefit of this trend.
Foolish takeaway
With Ramsay still trading at 19x FY19's estimated earnings it's not exactly cheap for its growth rate.
I'd be willing to invest in Ramsay at today's price if I could see a catalyst to solve the situation. But I don't, particularly with Labor planning to limit private health insurance premium rises. Indeed, politicians seem determined to limit hospital visits.
