Ramsay: Healthy Pick from Down Under

07/30/2013 10:30 am EST


David Dittman

Chief Investment Strategist, Australian Edge, Canadian Edge, & Utility Forecaster

This private hospital operator is our top choice among Australia-based health care names. The stock is well placed to benefit from long-term growth in health care spending around the world, says David Dittman in the Australian Edge.

Ramsay Health Care Ltd. (ASX: RHC) (RMSYF) has overcome recent changes in domestic health care insurance law, including means-testing for state-provided insurance, by continuing its effective brownfield growth strategy and by growing its profile abroad.

Ramsay recently entered a joint venture with Malaysian conglomerate, Sime Darby, to expand its footprint into Southeast Asia, positioning itself to capitalize on rising health care spending in the world's fastest-growing region.

Ramsay also completed the acquisition of a 90% stake in Clinique de l'Union, in Toulouse, France, to expand the Ramsay Sante business. It's an opportunistic move in a depressed European market.

Australia remains Ramsay's primary market, and here, trends are positive as well. Australians are seeing more doctors and having more tests.

If the scope of services continues to increase at the rate of the last decade, (74%), health care will demand an additional 2% of GDP by 2023. And health-care spending will be the biggest contributor to Australia's budget deficit by 2023.

The costs of health and aged care across federal and state governments are expected to almost double over the next four decades. Based on current rates of population growth and aging, the cost to governments of care will grow to 14.5% of GDP by 2049-50, from 8% in 2009-10.

Private hospitals currently treat 43% of all hospital patients. If current rates of growth continue, in 2021, private hospitals will be treating 50% of all hospital patients.

An aging population, with a growing disease burden, is leading to increased demand for health care. At the same time, rising costs across the globe are driving efforts to reform health care systems.

The private sector offers efficient, effective models of health care delivery. Thus, an expansion of the traditional private-sector role, by way of involvement in public health care delivery, is inevitable. This is why Ramsay Health Care's stock is doing so well.

Management boosted the final dividend for fiscal 2012 by 16.9% to AUD0.345 from AUD0.295 for fiscal 2011. In February, Ramsay announced a 13.7% increase in its fiscal 2013 interim dividend, to AUD0.29 from AUD0.255 a year ago.

We expect management to announce a final dividend increase of approximately 14% when it reports fiscal 2013 results on or about August 23.

Ramsay Health Care, yielding 2.5%-but with a consistently growing dividend rate-is now a buy on dips to USD34 on the Australian Securities Exchange using the symbol RHC and on the US over-the-counter (OTC) market using the symbol RMSYF.

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