Mediclinic: Buyers bet on share price recovery

A dismal performer the past few years, this ex-FTSE 100 stock has attracted buyers again on this news.

The vital signs at ex-FTSE 100 stock Mediclinic International (LSE:MDC) appear a little more encouraging today after the private healthcare company offered welcome reassurance on trading.

Shares in the South Africa-based company, which owns 29.9% of Spire Healthcare in the UK, have been hit by the impact of heightened regulatory oversight and closer scrutiny on healthcare affordability, most notably in its key market of Switzerland.

But today's update showing that Hirslanden, which is Switzerland's largest private hospital group, has met revised full-year margin guidance of 16% helped shares rebound 8% to 328p.

Source: TradingView   Past performance is not a guide to future performance

Analysts at UBS said the performance suggested that management may now have improved visibility into how profitability could evolve in what remains a challenging healthcare landscape. Morgan Stanley added that the update should "restore some lost confidence".

The pair have price targets of 430p and 360p respectively, which is a long way short of the 697.5p seen a year ago when Mediclinic was also relegated from the FTSE 100 index.

The company shot to prominence in the UK in 2016 when it bought Al Noor Hospitals Group for £1.4 billion in a reverse takeover that included the UAE-based firm's primary London listing.

Source: TradingView   Past performance is not a guide to future performance

A few months earlier Mediclinic became the largest shareholder in Neil Woodford-backed Spire Healthcare Group (LSE:SPI), which is one of the UK's largest private hospital providers with 39 hospitals, 11 clinics and a specialist cancer care centre.

The acquisition spree reflected a need to diversify the business at a time when growth opportunities in its home market of South Africa were being limited by a government probe into private hospitals and speculation over a national health insurance plan.

In contrast, the UAE healthcare market offered attractive growth potential based on a rise in so-called lifestyle diseases affecting an increasingly wealthy population. 

But where investors might have expected the group to benefit from the favourable trends on long-term healthcare, the company disappointed with its financial performance. In the case of Hirslanden, it has been hit by factors including the launch of a new national framework for basic medical treatments that transfers from an inpatient to an outpatient tariff.

Annual results last May showed a bottom-line loss of £492 million, impacted by non-cash impairment charges on Hirslanden and its Shire investment. Adjusted earnings per share rose 1% to 30p.

While long-term demand for its services is underpinned by an ageing population, this has been offset by lower economic growth in some regions and greater competition. Additionally, it has seen an increased focus on the affordability of delivering healthcare - resulting in changing care delivery models and greater regulatory oversight.

Morgan Stanley said the fact that Mediclinic now had three months' experience of the new Swiss regulations raised hopes that guidance for margins of 15% in the country was achievable.

Equity analyst Roy Campbell added:

“Underlying macro conditions in all regions remain difficult, and Mediclinic continues to face serious headwinds, which we think they have handled admirably.”

New CEO Dr Ronnie van der Merwe is confident that the company will make strategic progress in the next 12 months.

He said: "Adapting our business to the changing global healthcare environment is a priority and to this end further selective expansion and upgrade investments will be made across the group."