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Mid Cap Darlings – Life Healthcare Limited


Mid Cap Darlings – Life Healthcare Limited

Published Date: 2019-04-11 | Source: INCE|Community | Author: Sifiso Skenjana

Mid Cap Darlings – Life Healthcare Limited

The company's name is relatively self-explanatory. Sometimes simplicity is key. This group of companies is trying to keep you alive. Of course, at a cost. But what are you really paying for?

Business Model: Life Healthcare Group, formerly Afrox Healthcare is the second largest private hospital operator in the country and largest black-owned, boasting 6500 beds, owned by Brimstone Investment Corporation. The company generates 73% of its revenue from Southern Africa and 27% Internationally, following their global acquisition drive. Their international market exposure is largely in the UK, Italy, and Ireland, each contributing 48%, 31% and 10% to International business divisional revenue respectively.

Macro Landscape: There remains a regulatory overhang over the sector; this on the back of the Health Market Inquiry instituted by the Competition Commission and well as implications of the proposed National Health Insurance (NHI) scheme on the sector and its profitability. Disruption is coming in slowly in the sector where patients can now virtually consult without having to go in to physically visit a doctor. Data and effective use thereof will determine who of the large private healthcare providers is able to respond and effectively compete with the growing disruption in the sector.

Results (Year-end Sept 2018): In a relatively tough market where many of the big private hospital groups had little to no growth in earnings, Life realized revenue growth of 12.9%, EBITDA growth of 110.7% and a final dividend increase of 11.1% by 50 cents per share. They have succeeded in diversifying their revenue over the last three years where 89% came of acute sources and 11% from non-acute sources in 2016 compared to 65% and 35% respectively in 2018.

Growth Prospects: The public healthcare infrastructure in South Africa continues to fall short of meeting the minimum requirements to threaten the sustainability of the often expensive private healthcare provision. To labour, this point, their healthcare services division saw a 28.8% increase in revenue in 2018 from the previous year. In addition, the group seems to have a positively engaged government on removing the dark cloud resulting from the Life Esidimeni scandal; they have since added an additional 39 beds and re-admitted 700 Gauteng mental healthcare users. In their global operations, Life acquired Alliance Medical to create the largest European integrated radiotracer supply and imaging organisation.

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About The Analyst: The Mid Cap Darlings is brought to you by the Awkward Economist - Sifiso Skenjana. He has a breadth of experience in portfolio management, economic research and investment strategy and management consulting. He is founder and financial economist at AFRA Consultants. He is currently pursuing his PhD.

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