Healthcare | Amputate, cauterise or euthanise?
Healthcare demand is inelastic, representing one of society's most basic needs. Despite 1.5% annual population growth and an ageing affluent consumer, occupancies for South Africa's (SA) private healthcare providers have weakened to c.70% of capacity from c.72% in 2015 due to static medical scheme covered lives in SA at c.9m. By filling unused capacity, SA's private healthcare providers could care for an additional c.7.7m South Africans. Considering that c.44m South Africans depend on the public healthcare system, the proposed National Health Insurance scheme (NHI) could fill spare capacity in the private sector, albeit at a lower revenue per patient day (RPPD). We argue that NHI improves occupancies to c.75% in ‘25f as the private sector benefits from deteriorating public hospitals and limited bed growth.We expect a renewed focus on SA from Life Healthcare, Mediclinic and Netcare to increase cash generation through reduced expansion capex and system enhancements that raise the productivity of medical personnel. SA private healthcare providers are trading at a c.44% discount to their international peers. The global healthcare industry is experiencing similar challenges to LHC, MEI and NTC in SA. We do not believe the c.44% discount is warranted and believe the sector is c.16% undervalued.
Life Healthcare Group is an investment holding company. Co. operates and has interests in private healthcare facilities and healthcare services companies in southern Africa, Poland and India. Co.'s segments are comprised of: hospital, which includes all the private hospitals in southern Africa; Co.'s healthcare services businesses, which includes Life Esidimeni that operates a network of care centers through a public-private partnership, Life Occupational Health that provides contracted on-site occupational and primary healthcare services, and Careways Wellness that provides occupational health and employee wellness; international, which includes Poland; and other, which includes Corporate.
Netcare is engaged in provision of a range of general and other medical care services in South Africa and the U.K. Co operates its business within the following three segments: Hospital and Emergency Services, which include the operation of Co.'s private hospital network and emergency medical services; and Primary Care, which is engaged in the provision of primary healthcare services and managed care. Co.'s primary care segment provides medical and dental services through Medicross family medical and dental centers and Prime Cure clinics. Co.'s U.K. segment includes operation of private acute care hospitals in the U.K.
Avior is a globally recognised capital markets research and trading firm, with the broadest research coverage within the region, with 100+ SA and 20+ SSA companies under coverage. Avior services clients from offices in London, Cape Town and Johannesburg.
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