Bullish scenario for Life Healthcare

Johannesburg – An unpublished document has shown hospital chain Life Healthcare Group [JSE:LHC] can increase its bed capacity by up to 14% for the next four years and grow earnings by up to 18% per annum in a bullish scenario.

This means Life Healthcare - which on Tuesday announced it will list on June 8 - may have over 1 100 more registered beds by September 2014, taking its total to 8 500.

The report, prepared for Life Healthcare by leading global financial services group Morgan Stanley, stated profit from operations is expected to grow to R2.6bn by 2012 and R5bn by September 2014.

It also paints a rosy cash generating ability, from R1.7bn at the end of the current financial year to R2.7bn by the end of financial 2014.

The group's profit margins are also expected be superior compared to its competitors. Whereas Netcare and Medi-Clinic have been plodding along with close to 18% earnings before tax and interest margins, Life Healthcare will improve on its current 24.2% to 25.6% over the next three years.

Life Healthcare has apparently used those numbers to justify a price tag of R7bn, or between 1 400c and 1 700c/share for its June listing. That is for the 41.39% Life Healthcare has made available in a private placement to selected institutions, which will altogether propel Life Healthcare to within a whisker of the Top 40 of the JSE.

The market has put a combined price tag of R35bn on both Netcare (R19bn market cap) and Medi-Clinic (R16bn market cap).

However, Life Healthcare has also set itself some notable expansion targets. "Life Healthcare is actively considering opportunities in emerging markets such as Turkey and India and certain areas within the Middle East where it can leverage its skills, systems and experience," it said in its pre-listing statement on Tuesday.

The company plans to use expansion opportunities within its existing lines of business in selected attractive emerging markets similar to South Africa. The criteria are a rapidly growing middle class, increasing disease burden, underdeveloped public sector healthcare systems, and an expanding private health insurance market.

The company has budgeted a R543m capital expenditure budget for the year ending September. New developments will take up R164m of that amount, with R286m for organic growth projects and the rest for maintenance.