Mediclinic, further thoughts

Whoa!! Why did Mediclinic get trounced so much yesterday? Concerns over the margins in Switzerland and the UAE falling. The falling margins in Switzerland are related to specifically billing systems that have been installed to bill the state. Costs have had to rise with the new system having been implemented, new people. Equally, added to that was accepting more state patients, which is less profitable business than the folks with private insurance. You must remember that out of pocket spend in Switzerland is higher than anywhere in the world, the concentration of older and richer people in Switzerland is higher than in most places. The World Health Organisation estimates that it (out of pocket spend) is around 2500 Dollars per household. At the opposite end of the spectrum is a country by the name of Kiribati. 100 thousand permanent residents have an average out of pocket spend per household of 20 US cents. The climate in Kiribati, looking at their Wikipedia page looks the same for each and every month of the year.

Margin compression means that you are less profitable on the same revenues. Your cost base is rising faster than income from your service/good produced, in this case obviously it is a service. That is not good under any circumstance, most especially when the market is priming the stock for perfection. The stock trades forward on less than 20 times, and growth rates are expected to be somewhere in that region. The stock is now down 15 percent over the last month. On the flip side of that, the stock is up 18 percent during the last 6 months, 46 percent over the last year. Make no mistake, the expectations of the market are very high, they should be high. I have no idea where the stock will end or start to bottom out, I really think however that the company is very well positioned. They are growing all of their businesses, they know their local market well, Switzerland is a fabulous place to do business and the UAE must be well pleased with the development of their own healthcare industry. We continue to add on weakness, this is certainly a buying opportunity.