Johannesburg - With a new government at the helm of SA - and specifically a new minister of health - the possibility that controversial legislation could be scrapped may boost the likes of JSE-listed healthcare group Netcare, says an analyst.
Independent analyst Mark Ingham told Fin24.com that with the appointment of Barbara Hogan as the new health minister, it looks like amendments to the National Health Bill proposing that the health minister be given powers to regulate fees charged by private-sector hospitals and doctors will be scrapped.
"It looks like the amendments will get thrown out of the window, and if that happens then these companies can concentrate more on their business," said Ingham.
He said that even though her term was a short one, it was likely that the new government (to be elected early in 2009) would also scrap the legislation.
The uncertainty about the legislation has taken its toll on healthcare companies' share prices.
Between November 2007 and now (November 2008), Netcare's share price has fallen a little more than 43.13% on the JSE, while that of its rival Medi-Clinic has only lost 22.6% over the same period.
Analysts at the presentation said Medi-Clinic is the "more established" of the two, as it has been around for longer.
Medi-Clinic was founded in 1983 and listed in 1986, while Netcare was both founded and listed in 1996.
The group's outgoing financial director Peter Nelson told stakeholders at the results presentation: "The world is a different place out there today, there is more talk of recession."
He said it would be extremely difficult to predict the impact of the prevailing conditions on the economies of both SA and the UK, but what companies like Netcare do know is that "the need for healthcare won't go away".
"Healthcare remains a defensive stock, and this will help push back all the negatives [in the economy]," he said, adding that the UK will be more affected by an economic recession than SA.
Lower-income sector focus
Netcare released its year-end results on Monday, reporting a 16.8% growth in group revenue and a 12.7% increase in group operating profit. Its UK operations contributed 52% of revenues and 59% of operating profit.
Consulting firm Frost & Sullivan's healthcare analyst Ishe Zingoni said: "In the last financial year, Netcare continued to extend its footprint in the South African and UK markets through several strategic acquisitions."
He said that as the unpredictability of the SA healthcare market continues to throw up challenges, Netcare was "finding innovative ways to ensure ongoing growth" targeting lower-income markets, while its operations in the UK have become its largest income generator.
"The group most notably acquired the remaining stake in Community Hospital Group in South Africa, as well as nine Nuffield hospitals in the UK."
While the group had disposed of two of these hospitals after its financial year-end, Zingoni said that this acquisition offered a platform for penetrating new geographic markets within the UK and to take full advantage of strong growth in patient numbers.
Netcare also acquired 61% of Oxford Musculoskeletal Clinic LLP in the UK in August to further strengthen its position, he said.
Zingoni said that while Netcare will face increasing levels of competition in the UK market, the challenges to its local operations continue to be increasing regulations and cost pressures: "The risk of pending legislation can potentially restrict scope for growth".
-Fin24.com