Filling Beds

Governments across Ramsay Health Care’s global operations have agreed to provide financial support to private hospitals throughout the COVID-19 crisis in exchange for hospitals making their capacity and staff available to help deal with the influx of patients.

 

In Australia, the federal government will fund private hospitals at a viability level and will contribute 50% of the funding, with states to fund the remainder. Providers will be required to open their books and make their facilities, staff and personal protective equipment available to use for the COVID-19 response. In the UK, a detailed arrangement has been agreed between the UK National Health Service (NHS) and private operators. The arrangements in France are less clear. We understand the government will provide funding equivalent to 85% of the previous year’s revenues.

 

The detail is limited and the programs differ, but the net effect is likely to be similar – sufficient funding will be available to ensure that operating earnings (EBITDA) and cash flow do not sink materially into the red. Importantly, this will allow staff to be retained despite the drop in elective surgery, ensuring Ramsay is ready to operate at full capacity as the country emerges from the lockdown.

 

Ramsay may breach its debt covenants (3.5x net debt/EBITDA for the wholly owned group) if the crisis is protracted. We expect leniency from its banks, however, given we have little doubt the group will be a going concern in the post-COVID-19 world. Notably, Ramsay drew down $800m of liquidity recently to ensure it has financial flexibility.

 

We have cut our near-term forecasts to allow for a six-month crisis and the ensuing recovery, but we maintain our Accumulate recommendation and our $63.00 target price given our investment thesis remains intact.

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