Netcare gives billions back to shareholders
Analysts see this as a sign SA’s second-biggest private hospital group plans no more major acquisitions after its disastrous UK foray
SA’s second-biggest private hospital group, Netcare, is returning billions of rand to investors, a move analysts see as a sign that it is not planning any more major acquisitions after its disastrous UK venture.
Announcing annual results for the year to September 30, Netcare said it would pay a special dividend of 40c a share, equivalent to R550m. This is on top of its commitment to pay an interim dividend of 44c per share and a final dividend of 60c per share, equivalent to R1.36bn for the 2018 financial year, along with a post year-end share buyback scheme, which has returned R450m to shareholders. The total windfall due to investors is R2.36bn.
Netcare CEO Richard Friedland said management had reviewed the company’s capital structure and distribution policy after its decision in March to quit the UK and dispose of its interests in the UK’s biggest private hospital chain, General Healthcare Group, which left the company with solely South African operations.
“We spent a good few months looking at our various businesses and conducting a review of our portfolio, and came to the conclusion that if we did not have investments to be made that gave us an adequate risk-adjusted return, we would return funds to shareholders, be that dividends, special dividends, or share buybacks,” he said.
Netcare had a market capitalisation of R37.804bn, slightly ahead of rival Life Healthcare’s R36.786bn and trailing the sector’s giant Mediclinic, which had a market capitalisation of R45.406bn, after close of trade on Monday. All three companies have burned their fingers with offshore acquisitions. Life Healthcare is trying to sell its interest in India’s Max Healthcare. Mediclinic is grappling with a disappointing performance from its Swiss business Hirslanden and its stake in the UK private hospital group Spire Healthcare.
“We have seen quite a strong message on cash returns, which is not only good to get, but also sends a strong signal regarding capital asset management. It means they are probably not looking at making a large acquisition, which will be taken well by the market, given their unfortunate UK bungle,” said Old Mutual Equities portfolio manager Philip Short.
None of Netcare’s peers in the private hospital industry had returned capital to investors on such a scale, nor had many companies in other sectors, he said. “They are few and far between,” he said.
Fairtree Capital portfolio manager Jean Pierre Verster said investors would draw comfort from Netcare’s focus on capital allocation, and its emphasis on deriving more value from its South African operations. The management was clearly signalling that it would need to be a very compelling opportunity if it were to make another acquisition, he said.
Headline earnings per share fell to 49.3c, compared with 109.9c the year before, as the overall performance of the group was weighed down by the UK business.
Netcare said the UK operations had been deconsolidated and classified as a discontinued operation to allow comparison of the group’s underlying trading results.
Adjusted headline earnings per share from continued operations remained virtually flat, rising a mere 0.6% to 171.6c, compared with 170.6c in 2017.
At close of trade, Netcare’s share price was up 3.67% at R25.70.