With the company’s first quarter update pushing its share price 5% higher last Friday, could Ramsay be a turnaround story in 2021? Here’s what big brokers had to say.
First quarter FY21 recap
Ramsay Australia reported a 1.5% increase in total revenue, or a 6.6% increase excluding Victoria. This reflects a 1.7% increase in surgical admissions (ex-Victoria up 8%) and lower non-surgical activity. The Australian business experienced a decline in earnings before interest, tax, depreciation, amortisation (and restructuring or rent costs) (EBITDAR) compared to the prior corresponding period. This was impacted by the coronavirus restrictions on activity in Victoria’s second lockdown and the increased costs.
The company’s European division reported a 5.4% increase in surgical volumes combined with lower non-surgical activity. A similar narrative to the Australian business.
Ramsay UK reported a 9.9% decline in total revenue with volumes picking up in the latter part of the quarter. The United Kingdom and France currently operate under government support arrangements which both run until 31 December 2020.
The company was unable to provide a guidance for FY21 given the near-term uncertainties in the market. Notwithstanding the current environment, it believes that over the medium to long term, the healthcare industry fundamentals remain positive.
The Ramsay share price rallied 5% on the day of its first quarter announcement but remains near its post-COVID highs, just shy of $70.
Citi raised its Ramsay share price target from $70 to $71. It upgraded expected earnings for Australian operations but anticipates that Europe will likely take longer to return to normal. Overall expected earnings for FY22 and FY23 were upgraded by 2% each.
Credit Suisse lowered its Ramsay share price target from $70 to $69 and retains a neutral rating. The broker is not impressed with the first quarterly trading update but notes the improvement in Australian operations. Overseas earnings are still at risk and costs are rising.
Macquarie Group Ltd (ASX: MQG) raised its Ramsay share price target from $73.15 to $73.65 and retains an outperform rating. The broker sees the positives in the first quarter trading update, particularly in Australian activity levels. It notes rising costs due to the pandemic, but still sees longer term growth and value.