Spire Healthcare, the independent hospital group, has slumped 13% after it warned of a slowdown in business for the National Health Service and cut growth forecasts.
The company said the suspension of penalties for lengthening waiting lists at the NHS - announced earlier this month - meant there was less urgency in outsourcing to the private sector. Some trusts will financing problems were also sending patients to the NHS rather than private firms. It said:
At least in the immediate short term there is likely to be a slowing in the growth rate of Spire’s NHS business.
Our previous guidance of ‘low double digit’ growth envisaged stronger growth in the first half (our first half NHS revenue actually grew at 16.2%) following by single digit growth (against strong comparatives) in the second half.
We now expect flat NHS revenues in the second half.
It said growth for the year was forecast to be 4% to 6%, compared to earlier predictions of mid to high single digit rises.
It remained positive about the medium term and said its private medical insurance and self-pay businesses continued to grow.
The warning on the NHS came alongside news that first half underlying earnings had climbed 8% to £83.4m.
The shares, which floated at 210p just over a year ago, have dropped 51.6p to 350p on the news. But there is some support from the fact that South African private hospital group Mediclinic International took a 29.9% stake earlier this year.
Analysts at Investec said:
First half results were weaker than we anticipated, with NHS revenue growth falling short of the 20% growth we expected from the unwinding of pre-election waiting lists. Private medical insurance revenues declined versus a strong prior year, but self-pay growth was good.
With more NHS volumes expected to remain in the public sector in the first half, to address hospital deficits, Spire is downgrading 2015 revenue and EBITDA guidance.
Management are now guiding to sales and EBITDA growth of 4-6%, from mid-high single digit growth previously, which implies around 3% downgrades to our sales and EBITDA estimates.
Valuation remains underpinned by Mediclinic’s recent investment (29.9% stake) and expectations of a complete takeover at some point in the future, but we expect the shares to be weak today. We put our estimates and target price under review.
Numis said:
While this recent NHS development creates near term uncertainty, we note that NHS waiting lists are at the highest level seen since February 2008, which we would expect to drive self-pay markets and expect Spire to continue to benefit from its high quality and transparent pricing model. In light of recent share price out performance, up 16% relative to the UK market over the past month, we expect near-term pressure on the shares. We maintain our price target of 390p...and continue to view the shares as attractive in the medium to longer term.
