MEI Trading update

It's easy to write about recommended stocks that are doing well. Everybody loves to hear about those, as their profits rise and their share prices hit new highs. It's not as much fun to cover those that are doing poorly, and letting investors down.

Mediclinic is currently a nasty under-performer in our local portfolios. Take a look at the five year chart below, from Sharedata. The last three years have been awful, with the stock down from over R200 per share to just above R50 a share.



To be fair, it did really well in the years from its listing in 1986 until that time. From its base in South Africa it grew steadily though a string of hospital acquisitions. In 2008 it went offshore, acquiring Emirates Healthcare in Dubai, Hirslanden in Switzerland and a stake in Spire Healthcare in the UK.

Mediclinic did a reverse listing onto the London Stock Exchange in early 2016 which resulted in the current structure of Mediclinic International plc, and a new inward-listed JSE share code MEI. In the process, investor holdings of the old code MDC were switched out, resulting in the realisation of a capital gain and a re-basing of those owning it to a holding price of R204.10.

Things have not gone well since then. The SA business has continued to trade well, albeit somewhat affected by the weak consumer economy. The business in Dubai has battled, as some of the al Noor assets acquired there sagged. There were also wobbles related to co-payments by local citizens for certain care options. The Swiss business is very well-positioned and solidly profitable, but changes to the national health insurance laws there resulted in a number of previously covered procedures being deemed to be providable to day visitors only. The number of patients staying in-hospital overnight fell. One third owned Spire in the UK has been a mess, including slumping demand due to Brexit and a major malpractice claim.

Yesterday the group put out a trading update, which indicated that the above matters are now working their way through the system, and better times lie ahead.The new CEO Dr Ronnie van der Merwe put a brighter spin on the regulatory pressures in Switzerland, noting that the hospitals there had been rejigged to handle more outpatient procedures. Profit margins in the years ahead should revert to historic levels. The new Mediclinic Parkview Hospital in Dubai is trading well. Mediclinic shares rose 5.5% in trading yesterday, to R59.52. They have moved higher again today, to R61.75.

The group's results for the full year ended 31 March 2019 will be released on 23 May 2019. Profits will be flat, when compared to 2018. We advise you to hang on to your Mediclinic shares. Those who have had enough of waiting might consider a switch to Remgro, which owns 45% of Mediclinic, plus other assets.