Forum Topics RHC RHC Takeover Certainty?
thunderhead
Added 2 years ago

Ramsay's board really messed up here. Both the original and revised offer were good enough to accept given the tepid growth and still high valuation of the business, and for a vast majority of the shareholder register, there was no difference between the two. Now it's up to them to demonstrate they can create more value than that implied by KKR and co. within a reasonable timeframe, but I won't be holding my breath.

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Timocracy
Added 2 years ago

Can somebody please talk me out of selling everything in my portfolio with a 10-20% loss to buy Ramsay at $56?


I realise the KKR takeover is now null and void but surely the market has oversold this and even if other vultures don't come hunting at this lower share price there is a much more sensible long-term future as well as the *chance* that another "indicative non-binding offer" at something 30% higher would be extremely likely to prop up the price for a week or two which would give more than enough time to capitalise...no?


Obviously a risky move being mostly speculation but I would like to think the logic stacks up to some degree (yes, yes... market staying irrational longer than I can remain solvent etc)

8

Solvetheriddle
Added 2 years ago

@tbra97 M&A is a gamble take it as that. as for RHC IMO they have been destroying capital ever since the old man went and they started cranking up the overseas adventure. diworsification

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mikebrisy
Added 2 years ago

I'd never try and talk anyone out of anything, as I'm no expert and am probably wrong. But here's why I don't own and am not thinking of buying $RHC:

(For the following I am using FY23 forecast earnings of $414m, and not FY22 because $274m FY22 earnings are an unduly pessimistic anchor)

As a mature company, the key measures I am looking at are:

  • Diluted EPS CAGR: 5Yr = 0.11% 10 Yr = 4.19%
  • Dividend Yield 2022 = 1.3%
  • FCF CAGR: 5 Yr = -15% 10 Yr = +2%
  • ROE 2013 = 17% 2018 = 16% 2023F = 11.5%
  • Trailing P/E = 49
  • Forward P/E = 30

These are not great metrics.

Arguably, on a forward P/E it is looking cheap trading now towards the lower end of the historical band on a forecast basis, however, it doesn't have great earnings stability, so care should be taken fixing on a forecast earnings number.

While RHC is a good operator and will manage costs well, it has less control of revenue which is determined by dynamics with government and healthcare insurance companies.

17

Timocracy
Added 2 years ago

Yes @Solvetheriddle & @mikebrisy keep it coming! I suppose it could still easily halve in the near-term and hang low for a while as well. Thinking of Magellan at $22 last year... (different story, but potentially similar outcome)

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mikebrisy
Added 2 years ago

@tbra97 I don't see any case for SP to halve from here.

When I invest, I want a thesis where in the success case an investment can 2x+ in 5 years and 5x+ in 10 years. So, $RHC doesn't pass my filters as I can't construct any such thesis for it.

9

Mujo
Added 2 years ago

Not an expert in the stock but for management I would see an easy path to do exactly what KKR was planning, as on earnings it does not look cheap, i.e. sell and lease back the properties. It was all the KKR consortium was going to do to 'add value.'

Agree the overseas expansion has destroyed mountains of capital all in the hope that there is synergies from extra scale.

9

Timocracy
Added 2 years ago

@Mujo gives me ideas on an interesting approach;

Imagine I run a company that is treading water and the board of directors and management is lost on where to go next.

Invite offers to take over on the proviso they give a strategic plan, you know, to "show the shareholders it's a good idea"

Reject the offer either stating it undervalues the business or lose the offer and share price falls. Then buy back stock and implement the proposed value-add plans.


At that point though, management that can't already put two and two together probably isn't worth trusting with your money anyway. Lol.

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