RHC's SPP closes on Wednesday (20-May-2020). I'm heading in for a full hip replacement op in 1 hour. I'll be back home some time on Friday (22-May-2020). Probably won't have any internet access between now and then, so if I seem to have gone quiet, that's why. Take care Y'all!
27-Feb-2020: Financial Results Half Year ended 31 December 2019
RAMSAY HEALTH CARE PERFORMANCE IN LINE WITH EXPECTATIONS. REAFFIRMS FULL YEAR GUIDANCE
* The New Lease Accounting Standard (AASB16) was adopted on 1 July 2019 and comparatives have not been restated, as permitted under the transitional provisions in the standard. In order to make meaningful comparison of the results, commentary has been provided on a like for like basis under the Old Lease Accounting Standard (AASB117) for 1H FY20 and 1H FY19.
**Ramsay Santé has consolidated the earnings of Capio since the acquisition date on 7 November 2018.
(1) Before net non-core items
(2) Core EPS is derived from core net profit after CARES dividends
Ramsay Health Care today reported a Group Core Net Profit After Tax (Core NPAT) of $273.6 million, for the six months to 31 December 2019. On a like for like basis*, this was an increase of 3.4% on the previous corresponding period.
Core EPS is 132.5 cents for the half year, which on a like for like basis* is an increase of 3.7% or 145.8 cents.
The Company’s statutory net profit after tax, attributable to members of the parent (after adjusting for net noncore items after tax) is $258.4 million.
Directors are pleased to announce a fully-franked interim dividend of 62.5 cents, up 4.2% on the previous corresponding period. The dividend Record Date is 6 March 2020 with payment on 27 March 2020.
Ramsay Health Care Managing Director Craig McNally said overall, the business performed solidly in the 1H.
“Our businesses in the UK, Continental Europe and Asia performed well during the period but this was partially offset by more challenging conditions in Australia,” Mr McNally said.
“During the 1H, we continued to invest in infrastructure and research to position the business for the future including, digitalizing and integrating our IT systems."
“At the same time, we are focused on opportunities outside our core hospital business that will further our position as a global integrated healthcare service provider with a more convenient and accessible healthcare offering to better meet the expectations of our clinicians and our patients.”
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Disclosure: I hold RHC shares. They don't shoot the lights out, but they keep growing the business every year, and increasing their dividend every year. In fact, RHC and SOL (who I also hold) have increased their ordinary dividends every single year since the year 2000, so this will be the twentieth consecutive year of dividend growth for both companies. For the first 10 years of that 20-year period (from 2000 to 2010) Soul Patts (SOL) also paid additional special dividends, which makes their dividend chart look quite lumpy during that decade, but the main point is that both companies have increased their ordinary dividends every single year since 2000. Additionally, SOL's dividends have ALL been 100% franked during that period and RHC's div's have been 100% franked since 2003 (past 17 years), despite having a large part of their business based outside of Australia. Both RHC and SOL are excellent set-and-forget superannuation fund stocks, and are also suitable for investors seeking a regular and growing income stream via dividends.
25-May-2020: Ramsay Health Care Completes Share Purchase Plan
Was very oversubscribed - they received applications for almost $700m and the SPP was supposed to raise only $200m. They have increased the SPP size to $300m, but most shareholders will now still only receive new shares equivalent to about 32% of the RHC shares they held on the record date (21-Apr-2020), subject to the $30K individual application cap - and assuming that they applied for enough shares to cover that 32%. People who held a lot of shares but only applied for a small parcel in the SPP could possibly get most or all of what they applied for, however most applicants will get scaled back a lot (including me). Still, not too bad - the shares were issued at $56 each and RHC is trading at over $68 today (over 21% higher).
15-May-2020: Ramsay enters into NSW Binding Heads of Agreement
This binding agreement with the NSW Government comes after RHC had previously reached similar agreements with the Queensland and Victorian governments (which I've mentioned in other straws).
[Disclosure: I hold RHC shares. My total hip replacement surgery is now going ahead on Monday (18th May) so I might be a bit quiet next week.]
29 April 2020: Ramsay finalises Agreement with State of Victoria
RAMSAY HEALTH CARE FINALISES VICTORIAN AGREEMENT
Ramsay Health Care (Ramsay) confirms that it has finalised the comprehensive agreement with the State of Victoria (the State) to make its facilities and services available during the COVID-19 pandemic (Agreement). The Agreement supersedes the Heads of Agreement under which the State and Ramsay have been operating since 1 April 2020.
The term comprises an initial term beginning on 28 April 2020 until 20 business days after the State gives notice. That notice cannot be given before the later of 31 May 2020 and the lifting of temporary restrictions on category 3 and all non-urgent category 2 surgeries by the Commonwealth Government. In the event of an increase in COVID-19 cases, the State can ‘restart’ the operation of the Agreement for a further term if it needs to mobilise additional health resources and facilities.
In return for its commitment to use reasonable endeavours to maintain full workforce capacity at its facilities, Ramsay will receive net recoverable costs for its services (being its recoverable costs less its revenue amounts, calculated on an accruals basis). Recoverable costs includes direct operating costs, service costs, corporate overhead costs (to the extent related to the provision of the services), depreciation associated with pre-existing capital which is owned and amortisation of leases and preapproved capital expenditure. It excludes debt servicing and interest costs.
Discussions with the State Governments of New South Wales, Queensland and Western Australia to finalise agreements for those States continue.
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Disclosure: I hold RHC shares.
The following are some notes I put together to repond to a forum query by @Mozzie relating to RHC:
The biggest issue with RHC is that they have significant debt, with a gearing ratio that has ranged from 120% up to 160% for the past 5 years. This is because they have made some large acquisitions that have enabled them to expand into the UK and France. They have a very large presence in France now. The market is willing, for the most part, to accept that debt because:
a. The debt was used to purchase hospitals mostly which are very solid investments and are VERY unlikely to decline in value,
b. Ramsay is a large company with significant experience and an excellent track record of running hospitals, and they are sticking to their knitting for the most part (apart from expanding into medical centres and diagnostics, but they generally stick to running hospitals) so there is little execution risk;
c. The private hospitals that they run are a vital part of the health care system in Australia, the UK and France, as we have seen here in Australia with the Australian Federal Government guaranteeing their viability in the past couple of weeks in exchange for access to their equipment, facilities, staff and services to help combat the COVID-19 pandemic - the main point here being that these governments need a viable private hospital system to take the load off the public system, and therefore large private hospital operators will be provided with an operating environment in which they can continue to profitably operate - this is true in a crisis like this as well as in much more normal times; and
d. The assets purchased with the debt are producing sufficient cashflow to pay down the debt, so the debt will take care of itself over time. It is also locked in at low interest rates with repayments that are inline with projected cashflows and profits.
So that is the big negative - they have a LOT of debt.
1. RHC has reported increased NPAT for the past 10 years in a row (except for a small drop in 2018);
2. RHC has reported increased EPS every year for at least the past 10 years;
3. RHC's ROE has been double digits for the past 10 years and has been trending up, with an ROE of 14% back in 2010 and an ROE of 24.5% in 2019, so their profitability is good and higher than many of their peers;
4. RHC have increased their dividends every year for the past 20 years - you can check that here: https://www.sharedividends.com.au/rhc-dividend-history/ - just click on that link and then scroll down to the graph;
5. RHC's Book Value has increased every year for at least the past 10 years - so the business is worth more every year;
6. Commsec shows that RHC's ROC (return on capital) has ranged between 9% to 13% over the past 10 years; and
7. RHC is considered safe because they are one of the larger Health Care sector companies listed on the ASX and they are at the safer end of the Health Care spectrum, operating vital facilities rather than trying to develop new technology, new drugs or new treatments.
I hold RHC. I value them as being worth around $75, I have an $80 PT, and I'm happy to buy them (or top up my holding) at around $60. There is a quality premium in the share price, just as there is with CSL. You just have to accept that I think. CSL looked expensive at $200 this time last year and they're now over $300/share. RHC are no CSL, but they're not a world away either. RHC are very unlikely to have that sort of upside. They are more of a slower growth company that just keeps on keeping on, for those who are happy to have a steady achiever in their portfolio. RHC is one of those companies that you could buy at almost any time and at almost any price and then look back in 5 years and be very happy with that investment and the total shareholder return it will have provided for you. They are unlikely to shoot the lights out, but they make a very good super fund holding. They can also provide good shorter term returns when bought on dips such as we have seen lately. They're trading at under $60 again now, and they'll be back above $70 again soon enough, and heading back towards $80. We all need hospitals, particularly right now.
At 2:23pm Sydney time RHC is up around 15% today on the back of this announcement. The Australian Federal Health Minister, Greg Hunt, announced last night that private hospitals in Australia would work together with public hospitals as a single health system to be coordinated by State Governments. He said that the private hospitals were providing their facilities and the Federal Government were guaranteeing their viability - i.e. financially compensating them. It's a win-win for everyone of course. The private hospital operators (like RHC) will not lose any revenue because of this, and it massively increases the resources available to state governments to treat those COVID-19 patients that need hospital treatment, such as being on ventilators.
This announcement by RHC is reasonably brief:
RAMSAY HEALTH CARE RESPONSE TO FEDERAL GOVERNMENT DECISION REGARDING ELECTIVE SURGERY
Ramsay Health Care (Ramsay) confirms that it is in discussions with Federal and State Governments in Australia regarding the capacity and support Ramsay is able to provide as part of the Government’s COVID-19 response.
Group Managing Director Craig McNally said that Ramsay’s facilities globally are being utilised by governments and that we are in a position in Australia to ease the burden on the public health system.
He said the cancellation of Category 3 and non-urgent Category 2 elective surgery had been deferred in all private hospitals till 11.59pm 1 April. Decisions on the category of patients are at the discretion of their treating medical professional. Ramsay will continue to provide all its other services, including urgent surgery and medical services.
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I received a phone call this morning to inform me that my total hip replacement surgery that had been scheduled for mid-May has now been cancelled. I had expected that call, and if those beds are needed for COVID-19 patients at that time, then it's absolutely the right thing to happen. My condition is NOT life-threatening and can be easily managed via rest and medication for as long as is necessary. Many COVID-19 patients are not so lucky and may well not survive without in-hospital treatment such as induced comas and assisted breathing (ventilators).
I am hopeful for everybody that the proactive steps being taken by both Federal and State Governments here in Australia will have the desired effect of flattening the curve and avoiding the health care system becoming overwhelmed by a spike in cases that exceeds the system's capacity to handle the volume of patients. I think we can get through this with a much lower mortality rate than we have seen in many countries that were not so prepared or did not take such measures early enough. While dragging this out for longer will perhaps have more lasting economic impacts, if it reduces the human toll it is absolutely the right decision. People's lives are so much more important than money, investments, markets, or anything else. We do NOT want to find ourselves in the position that many people have found themselves in where they have more patients that need ventilators than they have ventilators, and they then have to decide who lives and who dies. That's an absolutely horrible situation for the patients obviously but also for the medical professionals who find themselves in those situations. I am encouraged by Australia's response thus far. It's proactive, it's trying to get ahead of the curve on this, and it should work. There will be significant economic and social impacts, but it will be worth it.
Meanwhile, a company like RHC (which I do hold incidentally) continues to be a good long-term investment. This public-private joint effort pretty much guarantees that private operators like Ramsay will NOT come out of this worse off because the various governments in the major countries in which they operate will fully compensate them for any losses (as announced by Greg Hunt last night).
07-May-2020: Ramsay Health Care finalises Queensland Agreement
22-April-2020: Ramsay Announces Equity Raising
RAMSAY HEALTH CARE (RHC) ANNOUNCES EQUITY RAISING AND CAPITAL MANAGEMENT INITIATIVES TO ENHANCE FINANCIAL FLEXIBILITY
(1) Ramsay Funding Group comprises wholly owned subsidiaries and excludes Ramsay Santé and its covenant-lite debt, which is non-recourse to Ramsay Funding Group
Ramsay is undertaking a fully underwritten institutional placement of new ordinary shares to raise approximately A$1,200 million (“Placement”) and a non-underwritten Share Purchase Plan (“SPP”) to raise up to an additional A$200 million (together, the “Offer”). The proceeds of the Offer will initially be used to partially repay Ramsay Funding Group’s revolving debt facilities which will remain available for redraw.
Ramsay’s Managing Director Craig McNally said, “the equity raising will strengthen Ramsay’s balance sheet and liquidity position, as well as increase financial flexibility during the unprecedented operating environment. More importantly, it will ensure that we can continue to pursue our growth initiatives and position us to take advantage of other growth opportunities that may arise”
“Private hospital operators, including Ramsay, are making an important contribution in terms of supplementing the broader public health system in fighting the COVID-19 pandemic,” Mr McNally said.
With more than 500 locations across 11 countries globally, Ramsay plays a critical role in the healthcare systems of each of its major markets. Ramsay is pleased to be partnering with Governments to supplement the public health response to COVID-19 and making a positive contribution to patients within all of its communities during the pandemic. The health and safety of Ramsay’s people is also paramount and it is taking proactive steps to monitor the impacts of COVID-19 and support them.
Commitment from Existing Lenders and Covenant Waivers
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COVID-19 Arrangements with Governments and Health Authorities
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Ramsay has determined to temporarily suspend ordinary share dividend payments.
Dividend payments on Ramsay CARES will not be suspended.
Details of the Placement
Ramsay is undertaking a fully underwritten Placement of new fully paid ordinary shares in Ramsay (“New Shares”) to eligible institutional investors to raise approximately A$1,200 million, at a price of A$56.00 per New Share (“Placement Price”) which represents a 12.9% discount to the last closing price of A$64.29 on 21 April 2020.
The Placement will result in approximately 21.4 million New Shares being issued, representing approximately 10.6% of Ramsay’s existing issued ordinary shares, and are expected to settle on 27 April 2020 and be issued, and commence trading on the following business day.
The Placement is fully underwritten by J.P. Morgan Securities Australia Limited.
Due to the nature of the Foundation, it will not be participating in the equity raising. However, the equity raising has the Foundation’s support.
Details of the Share Purchase Plan (SPP)
Following completion of the Placement, Ramsay will offer existing eligible shareholders the opportunity to participate in a non-underwritten SPP, to raise up to A$200 million.
Under the SPP, eligible Ramsay shareholders will have the opportunity to apply for up to A$30,000 of New Shares without incurring brokerage or transaction costs.
The Issue Price of the New Shares under the SPP will be the lesser of:
Ramsay may decide to accept applications (in whole or in part) that result in the amount raised under the SPP being greater than or less than A$200 million in its absolute discretion.
Full details of the SPP will be set out in the SPP Offer Booklet which is expected to be released to the ASX and dispatched to eligible shareholders on 29 April 2020.
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