Investors ignore writedowns and losses as Mediclinic tackles Covid-19 with healthy cash position

A more than 8% surge in Mediclinic’s share price despite the hospital group’s dismal financials released on Tuesday shows the resilience of healthcare demand, analysts said on Wednesday.

On Tuesday, the private healthcare provider which is listed on the London Stock Exchange with a secondary listing in Johannesburg and Namibia, said the coronavirus pandemic had a negative impact on the financial performance of its private hospitals in the year to 31 March.

It posted a loss of £320m (R6.9bn) compared with £151m in its 2018/19 financials as it wrote down its Middle East operation by £481m (R10.4bn), citing changes in the market in Dubai and Abu Dhabi, where it said the market is competitive. Mediclinic Middle East generates just under a quarter of group revenue.

On Wednesday, the share price reached an intra-day high of R65.50 before ending flat in brisk trade where more than one million shares to the value of R69m changed hands.

The group suspended its final dividend payout to preserve liquidity during the Covid-19 crisis, the company said in its results statement.

“While hospitals continue to operate under very trying conditions globally, the Mediclinic results gave us some indication at the speed at which demand is expected to return in healthcare markets,” said Sarah-Jane Alexander, portfolio manager, Coronation Fund Managers.

Simon Brown, the founder and director of investment website JustOneLap.com ascribed the positive investor sentiment to the improved cash flows and Switzerland looking a bit better post results. “Both excited the market and so they [the investors] ignored losses and writedowns,” he said.

In Switzerland, Mediclinic estimates that May revenues were only down 5% year-on-year, demonstrating the resilience of healthcare demand, Alexander said.

“An additional positive for Mediclinic’s Swiss business is that the Swiss market is now lapping a number of regulatory changes in the base and hence admission volumes were again growing before the Covid crisis hit the business,” she added.

Chief Executive Dr Ronnie van der Merwe said in a webcast that despite the onset of Covid-19 impacting the group from mid-March, Mediclinic’s full-year financial performance was still broadly in line with expectations.

He said March was typically the group’s busiest and strongest month of the financial year. “Given the speed of the pandemic, it was not possible to adjust the cost base quick enough as patients volumes suddenly dropped. As a result, Ebitda was down 3% compared with up 1% in constant currency if you exclude the impact of Covid-19,” Van der Merwe said.

Despite this the group was entering these uncertain times in a strong financial position and with good liquidity, he added.

Outlining the priorities for the year ahead, Van der Merwe said the group’s first priority is Covid-19 and how the group handles the pandemic. “We are aware that circumstances might change rapidly and that the resolution of the pandemic may not be a linear process. It might necessitate navigating peaks spread over an extended period or in rapid succession.

“However, Mediclinic is established and agile, and we now have a clear understanding of the pandemic.”

Van der Merwe expect Mediclinic to accelerate several strategic initiatives in response to the pandemic.

In April this year, the company which operates 77 hospitals in its three regions, suspended all non-essential capital expenditure and the dividend for the year to preserve cash during the pandemic.

Last month, Mediclinic Southern Africa launched a telemedicine solution to further complement its range of care delivery services, further supporting the response to the pandemic.

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