Ord Minnett has reviewed health policy statements from French president Emmanuel Macron, and from his Républic en Marche party, given they are on track to win a large parliamentary majority, for any potential impact on Ramsay Health Care's operations.
We note there are limited details available, but conclude that there is reason to be encouraged by the reformist agenda and their pro-business policies. In particular, we note the positive statements with regard to the role of private hospitals and apparent criticism of past tariff reductions.
That said, the tariff cuts already announced in March are still a headwind despite the positive politics. The expected impact of those cuts has led us to make further cuts to the expected contribution from the French operations. The revisions reflect a more conservative view on the group’s ability to offset the impact of the cuts. Overall, we believe it is likely reimbursement will at least stabilise in France, allowing Ramsay Health Care’s operations to return to growth by FY19.
In the interim, we expect further growth from the Australian operations to support continued double-digit earnings growth, with the division supported by the investment in pharmacy, brownfield expansion and the cost savings from the procurement program.
M&A also offers potential opportunities. Ramsay's net debt to operating earnings ratio is forecast to fall below 2.0 in FY18, and we expect management are seeking further acquisitions to bolster growth. We see Western Europe is the most likely region as prices remain high in Asia.