Johannesburg - Creating value from last year's offshore investments and details of the government's proposed national health system would dominate South Africa's listed healthcare sector in 2010, analysts told Fin24.com.
In the past 12 months, the R32bn pharmaceutical group Aspen Pharmacare Holdings and medical aid scheme Discovery Holdings, valued at R18.8bn on the JSE, bought shares in British and Chinese healthcare groups respectively.
Elsewhere, South African private hospital group Netcare entrenched its position in the UK market while Medi-Clinic Corporation did the same, only in Switzerland.
Mark Wadley, a healthcare analyst at stockbroker Credit Suisse Standard Securities, said Netcare and Aspen were the stand-out shares to watch this year.
"Netcare's probable listing of its United Kingdom business General Health Group (GHG) will help provide value for the UK division, and this might be a positive thing for the South African-listed Netcare," said Wadley in an interview.
Last year, GHG shareholders in the UK said they would list the group on the London Stock Exchange - a development that would present Netcare with an opportunity to increase its stake in the firm.
Markets would also eagerly scrutinise Aspen's performance following a newly-established relationship with Britain's GlaxoSmithKline.
"Aspen's significant offshore expansion over the past 18 months has changed the company quite dramatically," Wadley said. "The market will be watching the company's results carefully to see what revenue and earnings growth these offshore acquisitions/expansions will deliver."
Said another analyst: "Aspen's share price has appreciated 80% year-to-date on the back of its acquisitions, and so good reported results will continue to underpin the stock."
Adcock Ingram has been tipped as another share to watch because it was seeking expansion through acquisitions.
"To date Adcock's acquisitions have been pretty small in scale," an analyst said. "There is perhaps some scepticism in the market that Adcock could pull off a big acquisition, particularly after the failed Cipla Medpro deal," he said.
Devil in detail of NHI
Meanwhile, the government's plan to introduce a national health insurance (NHI), without spelling out the details, continued to create "enormous uncertainty" in the industry, said Niell Young, of Coronation Fund Managers.
What creates uncertainty is the practical form it will take, which remains elusive to date.
Peter Breitenbach of Frost & Sullivan said the NHI will have a significant effect on the fortunes of most players in the South African market.
"This includes hospital groups, medical schemes, and medical device vendors. The effect will naturally depend on the structure of the NHI and the potential role of these players in it," said Breitenbach.
"My opinion is that the private hospital groups will be coopted into the NHI in one way or another, implying greater volumes in patient throughput. However, we would expect that the NHI will add further pressure on prices, so margins will be squeezed," he said.
According to Breitenbach, pharmaceutical companies, particularly local producers, would in all likelihood benefit from the proposed changes, assuming government favours local production.
However, medical aids were most likely to be negatively affected if plans to set up the NHI went ahead, said Breitenbach.
"There is already significant rationalisation and the NHI will accelerate this, at best," he said.
- Fin24.com