Mediclinic’s share price up, despite doubling FY losses

Covid-19 uncertainty sees group suspending second half dividend pay-out for the first time.
The Mediclinic hospital in Stellenbosch. Image: Supplied

Despite private hospital giant Mediclinic International reporting even bigger financial losses of £320 million for its full-year to March 31, 2020 and growing uncertainty around the Covid-19 pandemic, the group’s share price was up almost 8.5% on the JSE on Tuesday.

In fact, the healthcare segment rallied on the JSE, with Mediclinic’s peers Netcare and Life Healthcare up almost 8% and 5%, respectively.

Source: Moneyweb, Highcharts.com

Mediclinic, which has a primary listing in London and secondary listing on the JSE, effectively saw its losses more than double.

Read:
Mediclinic sees full-year loss widen
Pandemic delivers R943m revenue blow to Netcare

For its 2019 financial year, the group posted a loss of £151 million. The latest full-year loss of £320 million, includes new IFRS [International Financial Reporting Standards] 16 accounting rules. Excluding IFRS 16 changes, its losses would have amounted to £315 million.

The group’s poorer financial performance comes as it saw massive goodwill, fixed asset and equity impairments totalling £524 million within its international operations. Goodwill and fixed asset impairment charges at Mediclinic Middle East came to £481 million, while its Hirslanden operation in Switzerland reported impairments of £33 million. Its Spire equity investment in the UK took an impairment hit of £10 million.

Mediclinic group CEO Dr Ronnie van der Merwe played down the impairments during a press conference call on the company’s results on Tuesday, saying the largest impairments within its Mediclinic Middle East business were not of a cash nature. He insisted the operation presents strong future growth potential.

“The group had a strong underlying performance overall, with all three operations’ [SA, Middle East and Europe] contribution to the group’s core earnings,” he said.

Despite the group’s “busiest month” of March being affected by the initial Covid-19 lockdown and restrictions, he added that the group’s overall full-year was “broadly in line with forecast”. He said there was a significant drop in patient volumes in March and April, however, May has seen an uptick in numbers.

Weathering the Covid-19 storm

Meanwhile, for the year ahead he said uncertainty around the Covid-19 pandemic will have an impact on all three of its operations. This has seen the group suspending the pay-out of its final full-year dividend for the first time in its history. The group did not give an indication of the total value of dividends it is withholding.

It is also curbing capital expenditure this year to conserve cash and bolster liquidity in the face of Covid-19, a move that is in-line with most JSE-listed corporates.

Van der Merwe said Mediclinic is in a strong financial and liquidity position to weather the Covid-19 storm. However, he noted that the pandemic is likely to be around for the next 12 months, causing a high level of uncertainty depending on its impact.

Not delivering?

Anthony Rocchi, a portfolio manager at Rexsolom Invest, believes Mediclinic has not delivered from a “return on invested capital” or ROIC basis over recent years.

“The acquisitions they made in the past never enhanced ROIC because they overpaid relative to the returns these assets produced. The impairment of the goodwill is post-fact confirmation of this and inconsequential to the share price and outlook,” he said.

“The company earns a return on capital marginally below its cost of capital…. So, before I get excited about their growth outlook, I need to understand if they will ever be able to earn ROICs above their cost of capital.

“Private medical care around the world has experienced regulatory headwinds for a number of years now, as governments exert pressure on what hospitals can charge. If hospital charges are regulated then margins tend to suffer,” added Rocchi.

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Mr Rocchi has raised the issue but needs to be more vociferous. In fairness to him he said something..something that our local fund managers struggle to do in their Hugo Boss suits sipping lattes paid for by creating consistent negative alpha!

Mediclinic hopelessly overpaid for acquisitions , have colossal impairments(R 10 BILLION this year) and cannot indicate when these businesses will generate decent returns-if they can at all!

Its time for a change..at leadership level. To mess up like this crowd did is not that difficult…give someone else a chance

End of comments.

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