Mediclinic International posted a trading update on Wednesday heralding positive results for the six months to the end of September, which left analysts upbeat on the stock.
Group CEO Dr Ronnie van der Merwe said the Switzerland division Hirslanden had delivered good revenue growth, while patient volumes in South Africa were in line with expectations.
“The strong performance at the new Mediclinic Parkview Hospital in Dubai and good growth of the Mediclinic Airport Road Hospital in Abu Dhabi contributed to growth in the Mediclinic Middle East Division,” he said.
Switzerland division starts delivering
After two years of impact from regulatory changes to the Swiss healthcare system, Hirslanden delivered growth of around 0.5% in both revenue and inpatient admissions. Geneva private hospital Clinique des Grangettes, acquired towards the end of 2018, contributed to a 5.5% growth in Hirslanden inpatient admissions for the six months to November.
A statement from Citi says the key takeaway from this is solid execution by Mediclinic in Switzerland, where the market has been consistently disappointed in recent reporting periods.
“We rate Mediclinic a ‘buy’ and see the trading update as supporting our constructive view,” says Citi.
Roy Campbell, an equity analyst at RMB Morgan Stanley, cited the easing of regulatory pressure that would allow Hirslanden more time to mitigate pressures, resulting in improved margins, as an upside risk.
Southern Africa sees growth in inpatient days
The Southern African division saw an increase of 2.7% in inpatient bed days sold.
The majority investment in Intercare, which consists of four day-hospitals, four sub-acute hospitals and one specialist hospital, paid off with a revenue contribution of R105 million. Intercare accounted for the majority of growth in the division’s inpatient bed days sold during the period at 2.4%.
Bank of America Merrill Lynch research analyst Patrick Wood said the revenue growth of 7% in Southern Africa was a touch ahead of expectations.
Middle East turnaround
At Mediclinic Middle East, revenue growth of 8.5% was driven by the continued ramp-up of Mediclinic Parkview Hospital in Dubai and a gradual improvement in the Abu Dhabi business, with Mediclinic Airport Road Hospital delivering a strong performance.
Van der Merwe says Mediclinic Parkview Hospital continues to outperform expectations since opening 12 months ago. Inpatient and outpatient volumes in the division were up 9% and 5.5% respectively.
Campbell noted the 8.5% revenue growth was “perhaps a touch light on expectations, but nothing really to write home about”.
He says the important areas are delivery, including:
- The Abu Dhabi turnaround, where the solid performance at Airport Road is an indication that the change in the patient mix business model is working, with a strong 9% growth in inpatient volumes, and
- The fact that the ramp-up of Parkview Hospital, which is a critical component of the Middle East growth story, is ahead of management expectations
Overall solid performance
At group level, revenue is expected to be up around 6.5% according to the trading update. Wood said that going forward, upside risks would include faster-than-expected growth in the UAE – particularly the ramp-up of the Parkview hospital; significant private revenue growth in Switzerland driven by new doctors; and positive foreign exchange moves.
“Further regulatory changes in Switzerland appear likely in the medium term, the pace of which will be key in determining whether Mediclinic faces further margin pressure,” says Wood. “SA operations remain stable, while the UAE should deliver earnings growth.”