SIMON BROWN: I’m chatting now with [independent analyst] Kea Nonyana. Kea, I appreciate the early morning time. We had the hospital groups on the JSE all out with results last week. Mediclinic I think had a 52-week high yesterday, although those [numbers] are relative, of course, due to the pandemic sell-off. The story for healthcare is an easy one. We are living longer, [with] technology coming through. Certainly a compelling story in that space. Is there a compelling story, however, for any of our local healthcare [stocks]?
KEA NONYANA: Good morning, Simon, and good morning to your listeners. I think the Covid-19 pandemic affected hospital groups more than any other sector on our bourse, both operationally and at a cost level. I think they had to realise their strategies as well as their operational activities in order to deliver their new reality. As we’re moving further and further on from the Covid pandemic, I think they are seeing a bit of sun at the end of the tunnel.
You spoke about Mediclinic – Mediclinic remains at the top of all the three hospital groups in terms of operational efficiency and profitability.
I think one thing that is common among them, for me, during the results when I was looking, is that the South African operations are actually doing better than their offshore operation.
SIMON BROWN: Yeah. They’ve all gone offshore in various different ways. They’ve all had challenges with their offshore adventures. But [as] things are, as you point out, we are seeing people return back to hospitals for elective surgery. They’ve kind of fixed up their businesses in many a sense during the pandemic to survive that shock and local ops are coming out, looking strong and, for want of a weird phrase in healthcare, picking up ‘occupancies’ again.
KEA NONYANA: I think that’s usually a bad thing – but for them it’s a good thing. [The more] demand for Covid-19 beds starts to wane, the more they can start opening up the elective surgeries, which is their high-margin business. We’ve seen [this] in the results top-line growth from most of these, actually all of these are healthcare providers. Also with Mediclinic and Netcare, we are seeing an improved operating leverage, which shows that they were able to realign costs and really maximise return on their assets after the Covid-19 pandemic.
SIMON BROWN: We have a very small healthcare space in our market. We’ve got the three hospital groups. Aspen is in there. Do you look abroad much, perhaps [at] individual counters in the offshore market? Or perhaps we’ve got a couple of ETFs (exchange-traded funds) locally and offshore that cover healthcare, because, as I said in the intro, the story for healthcare is compelling.
KEA NONYANA: To be perfectly honest the investor space in the South African market is really limited for investors here. As you said, we have the three hospital groups plus Aspen Pharmacare and, and *** smaller pharmaceutical companies. So for me, the Sygnia healthcare ETF [Sygnia Itrix Solactive Healthcare 150 ETF] is how I’d go into navigating going offshore,
…because taking out specific counters without local knowledge, especially for retail investors, is a little bit too risky for my liking.
But as I said, I still believe that even on the local market you will be getting good value with the three hospital groups and Aspen Pharmacare.
SIMON BROWN: I take your point, and I take exactly the same. When I start looking offshore, my eyes glaze over, because there is so much out there; it’s not my core competency. So I usually jump into the ETF. There’s the Sygnia [one] and in fact a Satrix one, I think, came out. I think it was just last week that it listed as well.
We’ll leave it there. Kea Nonyana is an independent analyst, talking the healthcare stocks locally and globally.