What is hurting Advanced Health's growth plans?
The company, like the hospital industry, has been under pressure for some time
Day hospital group Advanced Health’s share price has come under pressure because its growth strategy is taking longer to bear fruit than expected.
On Friday, the share price was down 1.85% at R1.06, closing in negative territory for the third week running.
The company, like the hospital industry, has been under pressure for some time, having declined 11.67% over the past 30 days of trade. Onerous health regulations and slow growth in medical-aid subscriptions have been key contributors.
Advanced Health listed on the JSE’s AltX in 2014.
A poor trading update from the group that indicated an increased loss for the 2017 financial year, as well as a material rights issue, revealed a sluggish growth strategy, said Mvunonala Investments equity analyst Matthew Zunckel.
Although it had aggressively rolled out day hospitals since listing, the facilities appeared to be taking longer to reach breakeven than originally guided, he said. "I think investors are losing patience, this is reflected in the weak share price over the past few months." A weak consumer and stagnating private medical insurance penetration rates were also not helping Advanced Health from a demand perspective, Zunckel said.
Advanced Health’s rights offer was not well-received, said Reuben Beelders, portfolio manager at Gryphon Asset Management. The group wanted to raise money to settle certain existing debt obligations, while also enabling it to enhance its capital structure to drive future growth.
Only 61.4% of the 66-million shares on offer were taken up, but the company said it was able to raise R86.2m to fund its growth and expansion strategy as it was underwritten by Eenhede Konsultante, a major existing shareholder.
Relying on underwriters was not a good thing as "it tells you that the market is not impressed with the strategy that management were following", Beelders said.
In February, CEO Carl Grillenberger said many of the recently opened hospitals would begin to show profitability only in the next three years.
The group will present its final results on August 29.