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Strong performance by Life Healthcare, as non-Covid-19 patients return

Hospital operator is inching back to pre-pandemic profitability.
The group’s performance has been supported by an increase in elective surgeries. Image: Image: Shutterstock

Life Healthcare Group’s JSE shares closed in the green on Thursday, increasing by 2.7% to R23.76 after it showed resilience in its full-year results to the end of September 2021. It reported a 128% surge in profit and an increase in group revenue, despite having to soldier through two years of the Covid-19 pandemic.

Steady climb back

South Africa’s second-largest private hospital operator said pandemic-related challenges – including the surge in operating costs, the need to increase staff capacity and additional spending on Covid-19 equipment – placed significant pressure on the group’s profit margins.

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However, as more people get vaccinated and fewer Covid-19 patients fill up hospitals, healthcare groups like Life are seeing more non-Covid-19 related patients walk into hospitals to seek medical interventions, helping the group’s balance sheet recover towards pre-pandemic levels.

“It’s a very good set of results; their turnover is up, their profits are up strongly and their UK operation did extremely well,” FNB Wealth and Investments portfolio manager Wayne McCurrie tells Moneyweb.

McCurrie says Life Healthcare’s results are in line with those of its competitors, indicating that people are returning to hospitals, helping companies in the sector inch their way back to pre-pandemic performance levels.

He adds that the exceptional performance in this sector will result in a surge in health stocks.

Figures

In the face of all these challenges, the hospital operator reported a group revenue hike from continuing operations of 12.7% to R26.8 billion (2020: R23.8 billion).

Headline earnings per share (Heps) rose by 128% to 111.1 cents (2020: 48.7 cents).

Profit after tax came in at R1.85 billion – up from just R38 million in 2020, but still a long way from the 2019 pre-pandemic level of R2.87 billion.

Life Healthcare also took the decision to resume dividend payments at 25 cents per share for the period.

Segmental review

The group’s Southern Africa performance has been supported by an increase in elective surgery patients. Revenue from operations in the region increased by 10.3% to R19 billion, while the normalised earnings before interest, tax, depreciation and amortisation (Ebitda) margin rose from 16.8% in 2020 to 17.1% in the current period.

The group’s Alliance Medical Group (AMG) segment – which has a presence across Europe and the United Kingdom – also delivered exceptional results, raking in revenue of R7.5 billion (2020: R6.3 billion previously), an 18.9% increase.

The AMG segment saw the Ebitda margin gain to 24.2% from 20.9% in 2020. These gains were driven by securing Covid-19-related contracts and underlying demand for imaging services in the UK, Ireland and Italy.

Resilience across the sector

Meanwhile Netcare, in a trading update released at the end of October cited pandemic-related costs as one of the main pressures weighing on its profit margins.

The hospital operator reported that it had treated a total of 126 130 patients since the pandemic started in March 2020, the majority of whom (97 076) were treated in the 2021 full-year reporting period ending September 30.

Despite this, Netcare expects to report resilient full-year results, with group revenue expected to be between 11% and 12% above that of the prior year. The group also managed to reduce its debt level by R1.1 billion, despite being under financial pressure.

Hospital chain operator Mediclinic International painted a similar picture in its half-year results for the period ending September 30, even though it cautiously withheld a dividend to maintain its liquidity position.

Mediclinic reported a rise in Heps from 2.4 pence in the 2020 comparable period to 8.8 pence in the current period, further reporting a 12% hike in revenue to £ 1.58 billion, coming in 4% higher than pre-pandemic 2019 levels.

Outlook

The said to be fast-approaching fourth Covid-19 wave continues to be a concern for hospital operators.

Life Healthcare has adopted a cautious approach to growth, opting to build on its existing plans rather than pursue new avenues of growth, especially in its Southern African operations.

“For our Southern African operations, we are cautiously confident that we can deliver continued PPD [paid patient day] growth, improved occupancy and normalised Ebitda margin expansion during 2022 while also anticipating ongoing negative impacts from potential fourth and fifth Covid-19 waves,” the group said.

The hospital operator says it plans to continue its efforts to enter the southern African imaging market, which is already established in its international segment.

Listen to Ryk van Niekerk’s interview with Life Healthcare CEO Peter Wharton-Hood (or read the transcript here):

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