Netcare’s ailing UK business at crossroads
The private hospital group is yet to find a buyer for its 57% stake in General Healthcare Group
Analysts say private hospital group Netcare will have to compromise on price or walk away from its UK business with nothing, after it emerged on Monday that it has yet to find a buyer for its 57% stake in General Healthcare Group (GHG).
Netcare paid £219m for its share of GHG in 2006.
Netcare said in March it would exit the UK after failing to negotiate a better rental deal for its hospitals, which had become an increasing drain on profit. Netcare has discontinued its UK business, making it a purely South African player.
After Netcare’s acquisition of GHG, it was restructured into an operating company called BMI Healthcare and a series of property companies called PropCo that held some of the hospital properties and rented them to BMI. The property group has debt of more than £1.5bn.
Despite interest from several parties, Netcare had yet to find a buyer for its 57% stake in BMI and its 57% stake in GHG PropCo 2, CEO Richard Friedland said on Monday as the group reported its interim results for the six months to March 31.
Sasfin Securities’ Alec Abraham said Netcare would need to find a buyer with deep pockets.
"A buyer would be taking on debt, onerous leases and infrastructure in need of an upgrade. They have been losing market share, even of NHS [National Health Service] business, because the facilities are not keeping pace with competitors. I think they will probably find a buyer, but not at the price they want," he said.
"In my mind it [the UK business] is worth nothing," said Gryphon Asset Management’s Casparus Treurnicht.
"I don’t see why a new buyer would get in. I think they’ll liquidate it," Abraham added.
Investec portfolio manager Andrew Joannou said a prospective buyer would have to take a holistic view of GHG, and deal with the fact that the properties were over-leveraged and the operating firm was paying too much rent.
"The PropCo business needs to come to the table, or it could be difficult for Netcare to find a willing buyer for BMI. Without a buyer, BMI’s financial position may become unsustainable and the Propco business could lose its tenant," he said.
Friedland said Netcare would continue to look at offshore opportunities, despite its disappointing UK venture. Management had considered four possible deals in recent years.
Group revenue from continuing operations, which excluded the UK business, increased 8.2% to R9.97bn compared with R9.2bn in 2017, while normalised earnings before interest, tax, depreciation and amortisation grew 8.1% to R2.1bn compared with R1.9bn in 2017.
Adjusted headline earnings per share from continuing operations grew 8.5% to 87.7c, compared to 80.8c in 2017.