Results in: Why the Ramsay Health Care Limited share price is falling

The Ramsay Health Care Limited (ASX: RHC) share price fell 3% to $70 after the company released its annual results this morning. Here’s what you need to know. It grew revenue 0.2% to $8.7 billion (up 4.1% in constant currency. Earnings before interest and tax (EBIT) grew 5% to $943 million, while Net profit after tax (NPAT) grew 9% to $489 million.

Core NPAT grew 13% to $543 million, while earnings per share grew 9% to 234.9 cents. In total dividends were up 13% to 134.5 cents. Its outlook was for Core EPS growth of between 8% and 10% in 2018.

So what?

It was a strong result for Ramsay, and in sharp contrast to one of its smaller Australian competitors, Healthscope Ltd (ASX: HSO). Whereas Healthscope grew its revenues by 4% and EBIT fell 0.7%, Ramsay’s Australian revenues grew 7% and its EBIT jumped 13%. Ramsay’s strategy of owning emergency departments and pharmacies in addition to its core hospitals appears to be paying off.

While the Australian operations remain the highlight, Ramsay also continues to expand in France and the UK, where the business environment is not nearly so buoyant. Management continues to focus on forming local clusters of related services (e.g. patient transport businesses, day surgeries, etc) which should continue to drive growth over time:

source: Google Finance

Now what?

Over the long term, Ramsay continues to see the key drivers of its recent growth continuing. The global population is ageing (life expectancy grew 2 years over the past decade), new healthcare treatments are driving up the cost of treatment, and chronic disease is growing at a rapid rate.

Growth in demand for medical services is expected to continue to outstrip growth in the supply of medical facilities, which management considers will place Ramsay in an advantageous position over the long term. Although Ramsay carries a meaningful chunk of debt, the company doesn’t look financially stressed, and should have plenty of liquidity to keep investing in future growth. While the Ramsay price tag is not cheap, demographic trends and its investment in growth could make it a long term winner.

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Motley Fool contributor Sean O’Neill has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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