Ramsay Health Care Ltd (ASX: RHC) is one of Australia’s largest and most well-known healthcare companies. Should Ramsay shares be in your portfolio?
Ramsay Health Care was established in Sydney in 1964 by Paul Ramsay. Now with over 50 years of experience, the company operates 480 facilities across 11 countries, including Australia, France, the UK, Sweden and Norway. Ramsay Health Care employs 77,000 staff globally to treat 8.5 million patients.
You can read about their latest earnings report here.
Why I Like It
Ramsay Health Care has a lot of the traits that I look for in a good investment.
They have experience and a long track record to prove their performance capabilities. One of the financial indicators I always look at is the return on equity (ROE). Ramsay Health Care has maintained an ROE above 20% since 2015, showing quality and consistency.
Ramsay’s current dividend yield is 2.2%, with the company paying out 57% of its earnings. While they are able to make strong returns on incremental capital, this makes sense to me. Plenty of investors would expect a higher dividend payment, but if the company can make a 20% return on equity I’m happy for them to invest the money for me.
One of the negatives for me is their level of debt. The current debt-to-equity ratio is 161.5%, with an interest cover of 7.6 times.
Looking at past returns, Ramsay Health Care struggled last year, and in October the share price was sitting at levels last seen in 2016. Since the low point in October, the share price has rebounded 24%.
Despite some weaker performances in recent years, over a 10-year period, Ramsay Health Care has returned 23.6% per year.
Should You Buy It?
The current question with Ramsay Health Care is whether their acquisition of European private healthcare business Capio will pay off. If the acquisition allows them to lower costs and increase revenue, it could be a great long-term move for the company. At the moment, it’s too early to say if this is the case.
Ramsay Health Care recently released investor presentations for parts of Europe showing that they are becoming a leading healthcare company in France and seeing growth in Sweden and Denmark.
Although I’m positive about this company, I’m not a shareholder. I don’t believe their growth justifies the current share price. However, if another buying opportunity arose, like the one in October 2018, I would consider adding Ramsay Health Care to my portfolio for a long-term investment.
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Disclaimer: At the time of writing, Max does not own shares in Ramsay Health Care Ltd.
