Mediclinic 6M - Turning a Corner

Yesterday morning Mediclinic released half year results. The stock popped on the news but after analysts had time to digest, it ended the day down by 0.7%. Still the stock is up 29% so far this year, here is what the CEO Dr Ronnie van der Merwe had to say.

"I am pleased with the progress we have made in adapting the business to current healthcare trends and changing regulatory environments, especially at Hirslanden in Switzerland.

At all three divisions, we continue to supplement our core acute care business through expansion across the healthcare continuum.

We operate in an industry sustained by the continued global demand for healthcare services and I am confident in our ability, as a market leader, to deliver innovative solutions, growth and consequently value to all our stakeholders."

We certainly agree with that last sentence, that is one of the main reasons we invested in Mediclinic from the start.

Revenues increased by 9% to 1.5bn GBP. EBITDA increased 4% and earnings went from a loss to a 109m GBP profit. Per share this equated to 9.9 pence. 3.2 pence will be paid as a dividend.

Hirslanden

This is their Swiss brand. Revenues increased by 5% and earnings increased by 3%. Margins contracted from 14.3% to 13.9% but are starting to stabilise. Remember, margins took a big dive in this business because of regulatory pressures. They have basically brought in an entirely new team to fix this. The more efficient low cost model they are targeting is apparently making good progress.

South Africa

Revenues increased by 7% and profits increased by 2%. They are also doing a large investment drive in SA. Mediclinic Stellenbosch Day Case Clinic (pic below) was opened in the period with plans to open 6 more day clinics in the next 2 years. Again this targets lower cost, more efficient healthcare.



Middle East

Revenues were up 8% and profits were up 10%. This division is finally taking shape as they open up new hospitals and streamline the Al Noor assets.

The numbers were decent and are showing signs of recovery. Net debt sits at 1.7Bn GBP, which is high but this business is asset intensive. They also managed a 98% cash conversion. The leverage ratio of 3.5x seems sustainable, especially considering that they have a cash flush large shareholder in Remgro.

We suggest you hold onto Mediclinic as it hits recovery mode. Remgro is also a decent entry into the stock with less risk but also less recovery upside.