Mediclinic plunges on weakness in Switzerland and UK
Shares in the private hospital group Mediclinic’s share price fell on Wednesday morning after it released a trading update
The share price of SA’s biggest private hospital group Mediclinic International nose-dived on Wednesday after the company warned of poor performances in Switzerland and the UK, with management describing the sector as experiencing unprecedented regulatory upheaval.
The trading update, in which Mediclinic warned of an 8% earnings decline, sparked a 16.9% drop in its share price to R73.96. This is its biggest one-day fall on the JSE since at least February 2016, when its primary listing moved to London following its acquisition of Al Noor in the United Arab Emirates.
Investors punished the company as they recently did with its rival Netcare, and pharmaceutical manufacturer Aspen Pharmacare, which saw their shares plummet on the back of disappointing news.
In September Netcare shed R3.825bn of its value after it said its earnings for the year to September 30 would fall slightly compared with the year before, due to difficult trading conditions. And Aspen saw its shares take their biggest intra-day knock in two decades after the market looked askance at the price it received for the sale of its infant milk business and earnings that fell short of expectations.
"There is a pattern here. Government regulation is getting a lot more aggressive on the pricing of health services and products, forcing companies to restructure their business models to accommodate lower pricing regimes and structural changes to the way healthcare operates," said Sasfin equities analyst Alec Abraham.
"Aspen has moved from generics to more focused therapeutics and the hospitals are focusing more on day clinics and broadening their treatments," he said.
Mediclinic CEO Ronnie van der Merwe acknowledged the regulatory challenges facing the company, saying the industry was undergoing unprecedented upheaval.
"The landscape in healthcare is changing … it’s the biggest change I’ve seen in my whole career," he said on a conference call with investors.
Mediclinic said it expected to report an 8% drop in adjusted earnings before interest, tax, depreciation and amortisation to £0.21bn for the six months to September 30.
Adjusted earnings per share were expected to be about 10p, compared to 11.3p for the corresponding period last year, it said in the trading update.
Its Swiss operations had performed worse than anticipated, as regulatory changes had a greater than expected effect on in-patient admissions and the insurance mix, leading to mere 1% growth in revenue, it said.
Gryphon Asset Management portfolio manager Casparus Treurnicht said that he had been concerned about the medical sector for some time, due to the influence regulatory bodies had on affordability and accessibility.
"Almost every single one of Mediclinic’s operations have been impacted by authorities in one way or another.
"In addition, we’ve also seen economic ‘health’ deteriorate in the UK and SA.
"I am starting to get concerned about Mediclinic’s balance sheet and we will need to keep an eye on it.
"For now, I believe they are still fine, but they cannot afford any further hiccups," Treurnicht said.