Ramsay Health Care Strategic evolution; build it and they will come?

About the author:

Dr Derek Jellinek
Author name:
By Dr Derek Jellinek
Job title:
Senior Analyst
Date posted:
16 December 2021, 7:00 AM
Sectors Covered:

  • Ramsay Health Care's (ASX:RHC) investor day(s) focused on the evolution of its strategy to create a best-in-class, digitally enabled, leading healthcare ecosystem for outcome focused integrated care both inside as well as outside the hospital.
  • While this stated “disciplined transformation” is clear, if not aspirational, the path to exactly how it becomes an orchestrator of a patient’s entire clinical pathway is not, with a lot of work and capital investment ongoing into systems, procedures, structures and people.
  • As the medium/longer term will be defined by execution of this strategy, we continue to see risk, with the near term dependent on the pandemic’s evolution, with disruptions across key regions and quarterly results “patchy and lumpy”.
  • We make no changes to our forecasts, with our DCF/SOTP target price unchanged at (login to view). Hold.


Ramsay Health Care (ASX:RHC) held investor briefings over two days providing an updated strategy designed to “capture the growth opportunities created by an evolving healthcare system”.

The strategic overview was presented at a high-level, built on growing, modernising and leveraging its hospital network, while moving into new and adjacent services to expand the service offering and provide comprehensive and integrated patient-centric care.

Key takeouts across the key demographies

Australia- impacted by lockdowns/isolation orders/elective surgery restrictions that vary state to state; elective surgeries lifted to 75% in SYD and VIC from 29 Nov; seeing increased surgical rates in Dec, but too early to draw any trends; non-surgical volumes remain subdued; mix remains unfavourable (high day admissions and public patients); increased COVID-related costs (A$3-4m/mo); growth areas (hospitals; day surgeries; mental health; adjacencies); increased public work and capacity expansion (A$263m brownfields/greenfields in FY22); high staff fatique and docs taking leave; situation “volatile” and picture “uncertain for some time”.

UK- pingdemic’ disruption over last 4-5 months changed consumer behaviour; significant procedural cancellations (10%+ of total admissions/mo); staff shortages; higher operating costs (GBP5m/mo); surgical waiting lists increasing (>5.7m; >300k waiting for more than 1 year); NHS tariff c3% from Oct-21; Government pledged GBP5.4bn over next 6 months to tackle the elective backlog, but addressing it boils down to “political drive and imperative”; strong private patient volumes tempered by increased local infection rates; opportunity for inpatient and day surgery models to add capacity to meet increased demand.

Continental EU- a “difficult time” over the short term as the COVID crisis “is not over” as activity levels are impacted by the fifth COVID wave and cancellations increasing; capacity constrained due to staff shortages limiting volume growth; inflationary trends on supply (>5%: energy, raw materials, transport costs); France: Government revenue guarantee ends CY21 uncertain if it will be extended into CY22; any transition period will create uncertainty; expect positive trajectory for tariffs in CY22 with quality funding increasing; Nordic region: activity level is “solid”.

Forecast and valuation update

We make no changes to our forecasts.

Our (login to view) price target is based on a blended DCF, PE and EV/EBITDA.

Investment view

While a growing surgical backlog remains supportive, the COVID response dictates the near-term earnings trajectory whereas the medium/longer term outlook is underpinned by an evolving “integrated care” operating model, requiring a material step-up in capex, which carries risk.

Price catalysts

1HFY22 results, 25 Feb-22.


PHI vagaries; COVID impacts; stronger/weaker volumes; margin compression/expansion; faster/slower Elysium integration and synergy capture. 

Find out more

Download full research note

If you would like access or more information, please contact your adviser or nearest Morgans office.

Request a call  Find local branch

Need access to our research?

You are also welcome to start a two-week trial of our online platform, which provides access to detailed market analysis and insights, provided by our award-winning research team

Create trial account 

Disclaimer: The information contained in this report is provided to you by Morgans Financial Limited as general advice only, and is made without consideration of an individual's relevant personal circumstances. Morgans Financial Limited ABN 49 010 669 726, its related bodies corporate, directors and officers, employees, authorised representatives and agents (“Morgans”) do not accept any liability for any loss or damage arising from or in connection with any action taken or not taken on the basis of information contained in this report, or for any errors or omissions contained within. It is recommended that any persons who wish to act upon this report consult with their Morgans investment adviser before doing so.

Solid top-line outcome: BAP’s 1Q22 revenue was flat on the pcp, an extremely resilient result given the extent of lockdowns in the period (~70% of stores impacted) and the strength of the pcp (cycling 27% growth). Composition comprised: Trade +2%; NZ -10%; Retail -12%; and Specialist Wholesale +7%. Overall, BAP stated that non-lockdown areas are outperforming expectations. ▪ 1Q22 trade & retail: Trade/Burson revenue was up +2% on the pcp (LFL sales - 1%; cycling 8% pcp); NZ/BNT revenue was down -10% (LFL sales -15%; cycling +4%); and Retail/Autobarn revenue was down -12% (LFL sales -16%; cycling +36%). Within the Retail segment, online sales were +80% on the pcp. Stores percentages impacted by lockdown were: Trade 70%; NZ 100%; and Retail 50%. ▪ Specialist segment results: Specialist wholesale revenue is up 7% on pcp, with Auto electrical/Truckline divisions ‘performing strongly’; and WANO underperforming. ▪ GM pressure expected to be temporary: BAP stated GM was stable across Wholesale and NZ (45% of FY21 revenue); and down ~50bps Trade and Retail (~55% of FY21 revenue), driven by promotional and online pricing in lockdown areas (we assume no margin pressure witnessed in non-lockdown areas). BAP expect margins to revert once lockdowns ease. ▪ The cost base has increased vs pcp, a function of duplicated DC costs (commencement of new VIC DC), and higher group and team member support (covid related) costs. BAP noted FY22 store rollouts and refurbs are on track.

  • Print this page
  • Copy Link