Around lunchtime, shares in the private hospital operator are down 10.5% to $49.50. Unfortunately, for Ramsay shareholders, this means clocking in a new 52-week low for the share price of this 59-year-old global healthcare giant.
Ramsay share price dives as costs bite
Here are the quick sound bites from the hospital operator's latest results:
- Group revenue up 11.6% to $15.3 billion
- Net profit after tax (NPAT) up 8.8% to $298.1 million
- Earnings per share (EPS) up 7.5% to $1.248 per share
- Fully franked final dividend of 25 cents per share, down from 48.5 cents
- Leverage ratio of 3.2 times, down from 3.5 times
What else happened in FY23?
For the 12 months ending 30 June 2023, Ramsay benefitted from a return to elective surgeries across its operations. Higher volumes helped the company increase revenue across Asia Pacific, the United Kingdom, and Europe.
The strongest growth was seen across Ramsay UK, boosted by a 14.4% increase in admissions. Notably, NHS — or public system — volumes outpaced private volume, rising 16% compared to the prior year versus private admissions' 10.4%.
Ramsay was not immune to the inflationary pressures in FY23. According to the report, labour costs and shortages weighed the company's ability to claw its way back to pre-pandemic margins. However, shortages are now easing across all markets.
The 2023 financial year got off to a rocky start for the Ramsay share price. Between 1 July and 21 October, shares fell approximately 23%, as shown above.
During this time, global investment company KKR walked away from a deal to acquire Ramsay for $88 per share. The investment consortium cited concerns around "meaningful downward pressure on the valuation" following Ramsay's FY22 results.
What did Ramsay's management say?
Sharing his thoughts on today's full-year results, CEO and managing director Craig McNally said:
We are pleased that the business environment is now recovering from the disruption of the last few years and, while the rate of growth has been slower than we expected and the trajectory inconsistent, we have seen patterns of activity improve over the last twelve months.
We will continue to proactively engage with our public and private payor groups, including seeking out of cycle benefit increases to better align reimbursement structures with the higher cost environment.
While we expect volumes to grow in the mid-single digits in FY24, inflationary cost pressures not fully reflected in reimbursement arrangements, investment in our digital and data programs and higher interest costs will slow the rate of margin recovery.
What's next for Ramsay?
Looking ahead, management guided for mid-single-digit revenue growth in FY24. However, profits are still expected to be contained by ongoing inflationary pressures that are not fully reflected in reimbursement structures.
Furthermore, the balance sheet is slated for further de-leveraging throughout the year. The potential sale of Ramsay Sime Darby and organic growth are earmarked as enabling forces to do this.
Lastly, the dividend payout ratio in FY24 is estimated to be between 60% and 70% of statutory net profit.
Ramsay share price snapshot
Disappointingly, today's move means the Ramsay share price is lower than where it was five years ago. When dividends are included, total returns for half a decade reach a paltry 4.4%. In contrast, the S&P/ASX 200 Index (ASX: XJO) has grown 15% over the same period.
Ramsay now trades at a price-to-earnings (P/E) ratio of roughly 38 times despite today's fall. This compares with the global healthcare industry average of 23 times earnings.