Will Brexit hurt the Ramsay Health Care share price?

A deal (or lack thereof) between the United Kingdom and European Union on 29 March is likely to significantly move share markets. The uncertainty surrounding Brexit has already caused a lot of volatility in global markets, however, investors need to consider the potential impacts, on specific companies, over the long term.

Australia’s largest private health care company

The Ramsay Health Care Limited Fully Paid Ord. Shrs (ASX: RHC) share price is a 6-bagger over the last decade, with a compound annual growth rate of about 20%. This includes some business stumbles and share price weakness over the last two years, however, the company has achieved this through its scale, diversified portfolio, industry-leading quality, and experienced management. Ramsay boasts that it “delivers a range of acute and primary healthcare services from 480 facilities across 11 countries, making it one of the largest and most diverse private healthcare companies in the world.”

By half-year revenue at 31 December 2018, Australasia is Ramsay’s largest market with $2.6 billion, followed by continental Europe with roughly $2 billion. Consequently, the United Kingdom is a relatively small percentage of Ramsay’s business with less than $400 million in revenue. Group revenue increased 14.9% and EBITDA lifted 9.8% to $5.1 billion and $728.6 million respectively.

Multiple markets

In the UK, despite marginal 1.6% revenue growth, the region posted the only negative EBITDAR contribution of minus 9.2%. Management advised that there was “a good recovery in Q2 NHS volume”, after a challenging Q1 which impacted overall earnings. The company is optimistic this improvement will be maintained in the second half. The British population should grow and age over time, even if Brexit makes it harder to work in and migrate to the region.

In Australia, more patients are choosing the public health system with declining private health insurance memberships and high out-of-pocket costs. This is resulting in expectations for low single-digit EPS growth in 2019. Over the longer term, demographic tailwinds and longer life expectancies should support the business.

On 7 November 2018, Ramsay made the strategic acquisition of Europe-based Capio AB. Capio is described by Ramsay as a “quality provider and a leader in driving value-based healthcare, digitalisation and specialisation”. The integration plan is underway, with Ramsay expecting the acquisition to be EPS accretive within two to three years.

Foolish takeaway

The economic impacts of Brexit will have a ripple effect throughout the region and may slow corporate growth, and thus spending. As a health care operator, Ramsay should be less impacted than a number of other industries and companies. Demographic tailwinds, international exposure and a relatively low valuation should mean that Ramsay can beat the market over the long term.

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Motley Fool contributor Proutlb95 has no position in any of the stocks mentioned and expresses his own opinions. The Motley Fool Australia has recommended Ramsay Health Care Limited. 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 Scott Phillips.

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