Healthcare | Rising off a low base
Our views around Mediclinic Switzerland (MEISW) have evolved guided by evidence that MEISW is delivering on its turnaround strategy by generating c.14% EBITDA margin for H1 20f. In our view, MEI's current share price is not reflective of the green shoots guided for in Switzerland. While Life Healthcare (LHC) has withdrawn from its Max India investment, we remain concerned about the longevity of their Alliance Medical (LHCAM) business. Since Jan ‘19 LHC has benefited from the inclusion c.470k insured PolMed lives, at the expense of Netcare (NTC). However, despite our c.40% growth in FY ‘20f LHC earnings, on a relative valuation basis we find LHC fairly valued at current levels. Netcare's (NTC) underlying acute hospital patient days fell by 1.4% y/y the worst of the SA healthcare providers Oct ‘19 trading updates. Of the healthcare providers, NTC has the most beds in SA, and in our view, NTC should strive to leverage off its scale advantage. While we foresee NTC margins to improve from digitising its healthcare offering, we would prefer NTC to jointly focus on negotiating new medical scheme designated service provider contracts.We downgrade Life Healthcare to a MARKET PERFORM rating and retain OUTPERFORM ratings for both Mediclinic and Netcare. Our expected market return has increased from 14.7% to 19.1%.
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.
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