Picture: istock
Picture: istock

Shares in Remgro-controlled private hospitals conglomerate Mediclinic International were sent reeling after the release of underwhelming interim results on Thursday.

The shares, which traded as high as R214 at the end of June, lost 9.74% to finish at R137.20.

Mediclinic owns operations in SA, the Middle East and Switzerland as well as a strategic investment in the UK.

It reported operating profit up 10% to £169m. But underlying earnings per share dropped 26% to 12.8p with additional shares issued to finance the acquisition of London-listed private hospital group Al Noor, which performed poorly in the interim period.

Lentus Asset Management chief investment officer Nic Norman-Smith said while Mediclinic was a solid company, earnings growth needed to be more convincing to justify the demanding earnings multiple placed on the share by the market. "They need a much better earnings performance to keep their share price up."

Perhaps of greatest concern to investors was operating margin being squeezed to 17.1% (from 19.7% previously) due mainly to the underperformance of the Middle East business.

At a media conference, the company was reticent to comment whether there were plans for further investment in the UK health-care market.

Mediclinic CEO Danie Meintjes said there was "not much" to say on a question around whether there were any plans to increase the 29.9% stake in UK-based private hospital group Spire. "We are happy with our position."

There has been speculation in the UK media that Mediclinic could increase its stake in Spire.

According to Mediclinic’s interim presentation, Spire’s first-half performance was in line with management expectations. The contribution from Spire (reflected as income from associates) came in at £10m (R170m), which equates to a contribution of about 1.8p to the overall interim earnings. Mediclinic paid £432m for its influential stake in Spire in 2015.

Mediclinic’s interim performance was buoyed by strong revenue and profit growth from the Hirslanden operations in Switzerland. A focus on efficiencies and cost savings allowed Hirslanden to continue growing its underlying margin on consistently high occupancy levels, Meintjes said.

Its underlying earnings were 19% higher at Sf54m ($55m).

In Southern Africa, Meintjes said the ongoing investment across the portfolio supported growing in-patient volumes as well as the continued roll-out of day clinics. Revenue from Southern African operations grew 8% to R7.3bn, with patient admissions up 3% to 299,000.

Local margins, however, were pressured by pharmacy inflation, salary increases and the creation of additional clinical positions.

Salary increases were the biggest factor in crimping margins but Meintjes explained that the increase in personnel costs was put through three months earlier in order to align the local operations with the other operating segments of the group. Underlying earnings from the South African operations decreased 5% to R596m.

The Middle East operations were the biggest drag on interim growth. The newly enlarged business (which now includes the Al Noor hospital group) was hampered by operational and regulatory factors in the United Arab Emirates, Meintjes said.

These included co-payments on health insurance being introduced, a large number of doctor vacancies and a delay in opening the Al Jowhara Hospital.

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