Netcare’s UK woes not as bad as investors feared
Netcare's share price rose 2% on Friday morning as the market sighed in relief that HEPS would fall only 60%
Investors in private hospital group Netcare appear to have been braced for its UK subsidiary, BMI Healthcare, to drag its headline earnings per share (HEPS) down more than 60%.
The market reacted on Friday morning to a trading statement Netcare issued at 5.30pm on Thursday, saying it expected to report on Monday that its HEPS for its 2018 financial year would between 44c and 55c — at best half the prior year's R1.10 — by sending its share up 2.3% to R24.90.
Problems in the UK have been a recurring theme in Netcare's results for the past few years. In its 2017 financial year results, Netcare booked a R1.7bn "onerous lease provision" for its UK subsidiary, which will be reversed in Monday's results statement.
Part of the reason for the plunge in HEPS is this provision.
Netcare said its HEPS also suffered from impairing debt it had underwritten for BMI. It changed BMI's accounting status to “discontinued operation” in the first half of its 2018 financial year, which translated into a R4.2bn "noncash profit" in its interim results.
Netcare's results on Monday will be followed by Life Healthcare's on Friday.
Life Healthcare issued a trading statement on November 9 saying it expected its HEPS for the year to end-September to grow by up to 45%.
In September, Life Healthcare announced it had divested itself from Indian joint-venture Max Healthcare, selling its 49.7% stake for R4.3bn to US private equity group Kohlberg Kravis Roberts & Company.
Max Healthcare suffered bad publicity in India after its Shalimar Bagh hospital was accused of negligence, and contributed a R67m loss to Life Healthcare's interim results.
Losses following efforts to diversify geographically have been a recurrent theme in all three of the JSE's large private hospital groups' results in the past few years.
Netcare and Life Healthcare both have market capitalisations of about R36bn, placing them in a tight race for second place behind Mediclinic which has a market cap of R47bn.
Mediclinic reported on Thursday that its Swiss subsidiary, Hirslanden, had dragged it into an overall net loss of £158m — outweighing the benefit of the Al Noor hospital group it acquired in 2016 finally contributing a profit.