The Ramsay Health Care Limited (ASX: RHC) share price is pushing higher on Wednesday.
In afternoon trade, the private hospital operator's shares are up 1.5% to $63.83.
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Why is the Ramsay share price pushing higher?
The Ramsay share price was given a boost today by a positive broker note out of Citi this morning.
In response to Ramsay increasing its takeover offer for Spire Healthcare in the UK, the broker retained its buy rating and $76.00.
Based on the current Ramsay share price, this implies potential upside of 19% excluding dividends over the next 12 months. This potential return stretches to almost 22% if you include them.
What did Citi say?
Citi notes that Ramsay has increased its offer for Spire Healthcare to 250 pence per share. This values the UK-based private healthcare company's equity at GBP1,040 million (A$1,900 million), which is an increase of ~$75 million.
According to the note, the broker believes that for Ramsay to maintain its investment grade rating, it will need to raise somewhere in the region of $600 million to $1,000 million. However, this is already factored into its valuation.
In light of this, it is focusing on the future and suspects that a successful acquisition and integration of Spire and a recovery in healthcare demand could drive a re-rating of the Ramsay share price later this year.
Citi commented: "We previously calculated that for RHC to maintain its investment grade rating, it will need to raise ~$850m in capital (we assume a hybrid security), which we include in our forecasts. Given the variables, the final capital gap could be between $600m and $1bn.
"Our TP implies RHC should trade on FY23E (normal year) PE of ~23x. There is risk to the FY21 result given the pandemic and more recently Australian lock downs – post the August result, we believe the market will focus on the recovery phase and integration of Spire, which will result in a re-rating of the stock," the broker concluded.
