Date Theme Sector

29 August 2022 Financial Result Healthcare

Company

Ramsay Health Care (RHC)

M/W: The French defence

Recommendation MARKET WEIGHT
12-mth target price (AUD) $72.00
Share price @ 26-Aug-22 (AUD) $70.50
We maintain our MARKET WEIGHT rating on Ramsay and revert to DCF valuation now that Forecast 12-mth capital return 2.1%
KKR’s indicative bid has been watered down. New price target of $72.00 per share implies that Forecast 12-mth dividend yield 1.8%
Ramsay should trade broadly in line with international peers with a modest premium for its 12-mth total shareholder return 3.9%
Australasian assets. The COVID impact on activity levels, costs, utilisation and profitability
remained in force over 2H22. Disruptions remain in 1H23, predominantly in the Australia/UK
Market cap ($m) 16,137
divisions, with activity restrictions and community reluctance continuing. Focus however remains
Enterprise value ($m) 21,040
on ensuring adequate staffing to keep up with the demand as volumes begin to increase,
expecting a gradual return before normalising in FY24e. With investment in brownfields and Shares on issue (m) 228.9
M&A continuing in all three markets, alongside well-developed relationships with relevant Sold short (%) 0.2
government and authorities, we remain positive that Ramsay can return to pre-COVID growth ASX 100 weight (%) 0.8
and resume its growth strategies. Median turnover/day ($m) 41.9

 Key Points
FY22 results Ramsay’s FY22 revenue results were in line or above forecasts in all three Dr Shane Storey
jurisdictions. At the group level, services revenue increased by 3% to $13.7B (WILSe: $13.6B). shane.storey@wilsonsadvisory.com.au
Weaker than expected profitability in Australia and Europe offset a strong UK operating result Tel. +61 7 3212 1351
with Group EBIT of $891M representing a 21% decline from last year. The COVID pandemic
continues to challenge private hospital profitability through additional costs, workforce attrition Dr Melissa Benson
and suboptimal facility utilisation. NPAT of $274M was a 39% decline versus pcp and a 9% miss melissa.benson@wilsonsadvisory.com.au
versus our forecast. Ramsay declared a final dividend of 48.5 cps. As expected, Ramsay provided Tel. +61 2 8247 6639
no FY23 earnings guidance, given their prevailing corporate situation.
Madeleine Williams
Revised KKR bid. KKR has revised its bid after encountering resistance from Ramsay’s 52.8% madeleine.williams@wilsonsadvisory.com.au
owned European subsidiary, Ramsay Santé. KKR now want to pay shareholders $88/share for Tel. +61 3 9640 3834
their first 5,000 RHC shares, only. RHC shareholdings beyond that limit would be acquired for
$78.20 cash and approximately 0.22 shares in Ramsay Santé (equivalent to $84.93 per share).

Model changes. Revenue cuts of 1-2% reflect organic adjustments and a slowing of Australian 12-mth price performance ($)
brownfield ROIC development by six months. EBITDA cuts of 1-3% relate to utilisation and the
deferral of margin recovery with pandemic-associated costs still prevalent ($38M in July 85.00
capturing both specific items like PPE and screening plus scale inefficiencies from cancellations 80.00
and restrictions). Operating profit cuts are limited to Australian and UK hospitals models;
75.00
whereas Générale de Santé (GDS) improved. NPAT/EPS downgrades of 10%-17% reflect higher
70.00
non-operating expense and the composition of profit (more attributed to non-controlling
interests). 65.00

60.00
Valuation. With the KKR bid for Ramsay in doubt we revert to a DCF valuation methodology
calculating $72.00/share. Our previous price target of $81.30/share was derived from the initial 55.00
Aug-21 Dec-21 Apr-22 Aug-22
KKR bid price ($88.00/share) less $6.70/share in expected dividends and distributions. Taking
RHC TOI
FY24e as the next available ‘normalised’ year, DCF implies just 8.9x EV/EBITDA for Australasian
assets, assuming that UK/Europe are priced in line with international peers (8.4x). A 6% premium
1-mth 6-mth 12-mth
for Australasian earnings is modest compared to historical multiples (often a 3-point valuation
premium paid for Australasian assets’ unique characteristics: market share, pricing power and Abs return (%) 0.3 9.5 4.0

freedom for brownfield development with direct ownership of hospital land and buildings). Rel return (%) (3.0) 7.9 9.2

Financial summary (Y/E Jun, AUD) FY21A FY22A FY23E FY24E FY25E Key changes 6-May After Var %
NPAT norm ($m) 449.0 274.0 441.8 608.0 763.3 EBITDA FY23E 2,263 2,186 -3%
Consensus NPAT ($m) 563.8 668.9 norm FY24E 2,538 2,492 -2%
EPS norm (cents) 198.3 121.2 195.3 269.0 337.6 ($m) FY25E 2,752 2,725 -1%
DPS norm (cents) 1.5 1.0 1.3 1.8 2.3 EPS FY23E 234.3 195.3 -17%
EV/EBITDA (x) 10.2 11.5 9.6 8.4 7.7 norm FY24E 298.7 269.0 -10%
P/E (x) 35.5 58.1 36.1 26.2 20.9 (cents) FY25E 403.3 337.6 -16%
FCF yield (%) 6.0 0.0 1.0 2.9 5.2 Price target 81.30 72.00 -11%
Rating M/W M/W
Source: Company data, Wilsons estimate, Refinitiv.
All amounts are in Australian Dollar (A$) unless otherwise stated.

Wilsons Equity Research

Analyst(s) who owns shares in the Company: n/a Issued by Wilsons Advisory and Stockbroking Limited (Wilsons) ABN 68 010 529 665 – Australian Financial Services
Licence No 238375, a participant of ASX Group and should be read in conjunction with the disclosures and disclaimer in this report. Important disclosures regarding companies
that are subject of this report and an explanation of recommendations can be found at the end of this document.
29 August 2022 Healthcare
Ramsay Health Care Limited

 Business Description  Investment Thesis

Ramsay Health Care Limited (RHC) is a private hospital operator in We maintain our MARKET WEIGHT rating on Ramsay and revert to DCF
Australia, Asia, the United Kingdom, and France. It operates large valuation now that KKR’s indicative bid has been watered down. New
metropolitan facilities, veterans’ hospitals, rural centres, psychiatric units price target of $72.00 per share implies that Ramsay should trade
and day surgery/clinics. Domestically, Ramsay is engaged in a program broadly in line with international peers with a modest premium for its
of brownfields expansion, looking to add capacity to service an ageing Australasian assets. The COVID impact on activity levels, costs,
population. Abroad, Ramsay looks to acquire hospital groups and utilisation and profitability remained in force over 2H22. Disruptions
implement its own operating style and margin discipline. remain in 1H23, predominantly in the Australia/UK divisions.

 Catalysts  Risks
a) acceleration of brownfields; b) sustained dividend growth; c) further a) protracted pandemic impacts; b) execution on expansionary capex; c)
European expansion and/or M&A; d) positive regulatory or funding private health insurance policies and pricing; d) competition; e) occupancy
adjustments. and utilisation risks.

P&L ($m) FY21A FY22A FY23E FY24E FY25E Balance sheet ($m) FY21A FY22A FY23E FY24E FY25E
Sales 12,864 13,528 14,512 15,503 16,214 Cash & equivalents 1,005 314.2 283.5 148.2 102.8
EBITDA norm 2,054 1,830 2,186 2,492 2,725 Current receivables 1,801 2,331 2,300 2,500 3,269
EBIT norm 1,133 891.3 1,219 1,460 1,632 Current inventory 409.4 376.8 600.0 525.0 572.1
PBT norm 741.6 538.5 802.4 1,056 1,279 PPE 4,489 4,807 5,090 5,258 5,164
NPAT norm 449.0 274.0 441.8 608.0 763.3 Intangibles 4,260 5,799 5,799 5,799 5,799
NPAT reported 449.0 274.0 441.8 608.0 763.3 Total assets 19,325 19,473 19,917 20,075 20,752
EPS norm (cents) 198.3 121.2 195.3 269.0 337.6 Current payables 3,014 3,046 3,100 3,100 3,759
DPS (cents) 151.5 97.0 125.0 175.0 225.0 Total debt 5,281 5,216 5,216 4,916 4,416
Other liabilities 6,479 6,685 6,715 6,747 6,780
Growth (%) FY21A FY22A FY23E FY24E FY25E Total liabilities 14,774 14,947 15,031 14,763 14,956
Sales 3.8 5.2 7.3 6.8 4.6 Minorities 518.1 592.7 592.7 592.7 592.7
EBITDA norm 11.4 (10.9) 19.5 14.0 9.3 Shareholders equity 4,551 4,526 4,886 5,312 5,797
NPAT norm 33.3 (39.0) 61.2 37.6 25.5
EPS norm (cents) 19.1 (38.9) 61.1 37.7 25.5 Cash flow ($m) FY21A FY22A FY23E FY24E FY25E
DPS (cents) 142.4 (36.0) 28.9 40.0 28.6 Operating cash flow 1,481 715.5 1,413 1,667 1,852
Maintenance capex (628.9) (708.5) (1,250.0) (1,200.0) (1,000.0)
Margins and returns (%) FY21A FY22A FY23E FY24E FY25E Free cash flow 852.3 7.0 163.4 466.9 852.1
EBITDA margin 16.0 13.5 15.1 16.1 16.8 Growth capex 0.0 0.0 0.0 0.0 0.0
EBIT margin 8.8 6.6 8.4 9.4 10.1 Acquisitions/disposals 0.0 (1,228.5) 0.0 0.0 0.0
PBT margin 5.8 4.0 5.5 6.8 7.9 Dividends paid (111.0) (371.0) (194.1) (302.1) (397.5)
NPAT margin 3.5 2.0 3.0 3.9 4.7 Other cash flow (2,310.1) 1,552 0.0 0.0 0.0
ROA 5.9 4.6 6.1 7.3 7.9 Cash flow pre-financing (1,568.8) (40.6) (30.7) 164.7 454.6
ROIC 12.8 9.5 12.4 14.5 16.1 Funded by equity 0.0 0.0 0.0 0.0 0.0
ROE 9.9 6.1 9.0 11.4 13.2 Funded by cash/debt 498.9 690.6 30.7 135.3 45.4

Interims ($m) 2H21A 1H22A 2H22A 1H23E 2H23E Liquidity FY21A FY22A FY23E FY24E FY25E
Sales 6,535 6,473 7,055 7,154 7,358 Cash conversion (%) 94.6 72.1 95.1 96.3 95.5
EBITDA norm 1,015 952.6 877.6 1,042 1,144 Net debt ($m) 4,276 4,902 4,933 4,768 4,313
EBIT norm 548.8 489.2 402.1 570.2 648.8 Net debt / EBITDA (x) 2.1 2.7 2.3 1.9 1.6
PBT norm 343.2 303.7 234.8 361.9 440.4 ND / ND + Equity (%) 48.4 52.0 50.2 47.3 42.7
NPAT norm 223.0 158.9 151.4 199.7 281.9 EBIT / Interest expense (x) 2.9 2.5 2.9 3.6 4.6
NPAT reported 223.0 158.9 151.4 199.7 281.9
EPS norm (cents) 98.5 70.3 67.0 88.4 124.7 Valuation FY21A FY22A FY23E FY24E FY25E
DPS (cents) 103.0 48.5 48.5 50.0 75.0 EV / Sales (x) 1.6 1.6 1.4 1.4 1.3
EV / EBITDA (x) 10.2 11.5 9.6 8.4 7.7
Stock specific FY21A FY22A FY23E FY24E FY25E EV / EBIT (x) 18.6 23.6 17.3 14.4 12.9
AsiaPac revenue ($m) 5,464 5,361 5,461 5,888 6,233 P / E (x) 35.5 58.1 36.1 26.2 20.9
Nordics revenue ($m) 1,918 2,047 2,093 2,223 2,289 P / BV (x) 3.1 3.6 3.3 3.0 2.8
UK revenue ($m) 1,024 1,322 1,874 1,915 1,970 FCF yield (%) 6.0 0.0 1.0 2.9 5.2
French revenue ($m) 4,919 5,001 5,084 5,478 5,721 Dividend yield (%) 2.1 1.4 1.8 2.5 3.2
AsiaPac EBITDA ($m) 855.1 713.6 849.7 1,004 1,170 Payout ratio (%) 76.4 80.0 64.0 65.0 66.6
UK EBITDA ($m) 181.2 80.1 262.9 334.9 364.3 Franking (%) 100.0 100.0 100.0 100.0 100.0
Europe EBITDA ($m) 1,017 1,037 1,074 1,154 1,190 Weighted shares (m) 226.4 226.0 226.2 226.0 226.1

Source: Company data, Wilsons estimate, Refinitiv.

All amounts are in Australian Dollar (A$) unless otherwise stated.

Wilsons Equity Research Page 2

29 August 2022 Healthcare
Ramsay Health Care Limited

Ramsay (RHC) FY22 result review

 Income statement and result

Ramsay’s FY22 revenue results were in line or above Figure 1. Ramsay’s FY22 result vs pcp and our estimates
forecasts in all three jurisdictions. At the group level
($ in mn) FY 2 1 A FY 2 2 A %chg WI L S e % var
services revenue increased by 3% to $13.7B (WILSe:
$13.6B). Asia Pacific 5,464 5,361 -2% 5,308 1%

UK 1,024 1,322 29% 1,250 6%

Australia: revenue flat at $5.4B but missing by 2% with Continental Europe 6,840 7,064 3% 7,023 1%
COVID-impact exacerbated in the 2H (Omicron). EBITDA
R e v e nue 1 3 ,3 2 8 1 3 ,7 4 7 3% 1 3 ,5 8 1 1%
declined by 17% to $714M (WILSe: $725M) with higher
labour costs due to increasing rates of employee EBI TDA 2 ,0 5 4 1 ,8 3 0 -11% 1 ,8 8 2 .0 -3%
absenteeism and cancellations hurting Asia Pacific 855 714 -17% 725.4 -2%
utilisation/profitability. The estimated impact of the
UK 181 80 -56% 65.2 23%
disruption across the twelve-month period was $264m
net of the $12m in viability payments. Continental Europe 1,017 1,037 2% 1,091.4 -5%

D&A 921 939 2% 955.7 -2%

UK: revenue increased 29% to $1.3B (6% ahead of
EBI T 1 ,1 3 3 891 -21% 9 2 6 .3 -4%
estimates). The acute hospitals were subject to a new
volume-based agreement with NHS over the 3Q but Net interest 391 353 -10% 371.5 -5%
with the ability to treat private patients. EBITDA of $90M Tax 230 159 -31% 178.1 -11%
beat our $66M forecast given the COVID cost impact
Minorities 63 105 68% 74.9 40%
(~£30.6M) was lower than expected. Elysium
contribution was in line: $284M revenue and $23M EBIT NP AT 449 274 -39% 3 0 2 .7 -9%
over 5 months. EP S 1 .9 8 1 .1 6 -41% 1 .3 4 -13%

Operating cash flow 1,481 715.5 -52% 788.2 -9%

Europe: revenue increased 3% to $7.1B (in line). EBITDA
increased 2% to $939M (WILSe: $955M). Again, we
under-estimated the costs of operating in COVID. % of ne t r e v e nue FY 2 1 A FY 2 2 A WI L S e

Asia Pacific 41.0% 39.0% 39.1%

NPAT of $274M was a 39% decline versus last year and United Kingdom 7.7% 9.6% 9.2%
a 9% miss versus our forecast. Favourable interest and
Continental Europe 51.3% 51.4% 51.7%
tax expense lines were outweighed by better than
expected European profitability in 2H22 which saw EBITDA margin 15.4% 13.3% 13.9%
~$30M additional profit flow through the non-controlling
Core NPAT 3.4% 2.0% 2.2%
interest line. Source: RHC, Wilsons.

 Balance sheet, cash flow and dividends

Ramsay closed FY22 with $4.9B in net debt (excluding leases) which is ND: EBITDA of 2.2x (12 months
forward). We are forecasting that to remain stable over FY23e but then see capacity to de-lever over
FY24-25e reaching a position of ~$4.3B (1.5x). Gross cash conversion in 2H22 was 98%. We are
modelling a gradual return to normal in cash flow conversion as EBITDA recovers. FY21-22 experienced
volatility from weak underlying EBITDA, French government pre-payments and the failed Spire acquisition.
Ramsay declared a final dividend of 48.5 cps taking FY22 payout to 97 cps.

Wilsons Equity Research Page 3

29 August 2022 Healthcare
Ramsay Health Care Limited

Outlook
 Guidance

Given that Ramsay is the target of an ongoing acquisition process the company provided no quantitative
earnings guidance for FY23. Activity levels and profitability remain impacted across all jurisdictions while
COVID cases remain high. Gradual improvements are expected with surgical backlogs to process and
returns to surgical and non-surgical organic volume. In Australia, Ramsay is looking to improve the terms
on which it contracts with the public sector and to extract real pricing increases from payors to offset
inflation and staff cost increases. UK remains impacted by NHS capacity restrictions but this is being
partially offset by growth in private admissions. UK and Europe both benefit from the annualization of
acquisitions made in FY22. The French Government has indicated that it will extend the revenue guarantee
from 1st July 2022 to 31st December 2022.

 Changes to forecasts

Changes to our forecasts are summarised in Figure 2 below.

Revenue. We moderated organic growth assumptions modestly for all jurisdictions in FY23e and this
perpetuated through the forecast years. The more significant change in Australian growth capex model
was to slow ROIC development by six months.

EBITDA. Earnings changes relate to utilisation and the deferral of margin recovery with pandemic-
associated costs still prevalent ($38M in July capturing both specific items like PPE and screening plus
scale inefficiencies from cancellations and restrictions). EBITDA forecast changes are 1%-3%. Again,
earnings changes are predominantly in the Australian and UK hospitals models.

NPAT/EPS. NPAT downgrades of 10%-17% reflect several model changes including: a) increased D&A
forecasts across the forecast period; b) higher net interest expense in FY23e; and c) the impact of operating
level profit downgrades in Australia and UK magnifying the proportion of profit attributed to non-
controlling interests (having also remodelled the Générale de Santé piece).

Dividends. We revert to a pay-out ratio just below 70% across the forecast. Note that the FY23e change
withdrew a special dividend that we introduced earlier in the year following our analysis of KKR’s initial
bid.

Figure 2. Summary of earnings changes (FY23-25E)

Y /E Jun, AUD FY 2 3 E FY 2 4 E FY 2 5 E

Old Ne w % chg Old Ne w % chg Old Ne w % chg

Sales $m 14,818.4 1 4 ,5 1 2 .3 (2.1%) 15,745.9 1 5 ,5 0 3 .5 (1.5%) 16,350.0 1 6 ,2 1 3 .5 (0.8%)

EBITDA norm $m 2,263.1 2 ,1 8 6 .2 (3.4%) 2,537.7 2 ,4 9 2 .2 (1.8%) 2,752.0 2 ,7 2 5 .1 (1.0%)

NPAT norm $m 530.1 4 4 1 .8 (16.7%) 675.1 6 0 8 .0 (9.9%) 911.9 7 6 3 .3 (16.3%)

EPS norm $m 2.30 1 .9 5 (15.2%) 2.95 2 .6 9 (8.8%) 4.03 3 .3 8 (16.3%)

DPS $m 7.40 1 .2 5 (83.1%) 1.65 1 .7 5 6.1% 2.75 2 .2 5 (18.2%)

Source: Wilsons estimates.

Wilsons Equity Research Page 4

29 August 2022 Healthcare
Ramsay Health Care Limited
 Earnings forecasts

Figure 3. Revised forecasts (FY18-FY25e) with HY detail for FY22-23e.

($ in mn) FY 1 8 A FY 1 9 A FY 2 0 A FY 2 1 A 1H22 2H22 FY 2 2 A 1H23 2H23 FY 2 3 E FY 2 4 E FY 2 5 E

R e v e nue 9 ,1 2 4 1 1 ,5 5 0 1 2 ,4 0 2 1 3 ,3 2 8 6,692 7,055 1 3 ,7 4 7 7,154 7,358 1 4 ,5 1 2 1 5 ,5 0 3 1 6 ,2 1 4

Asia Pacific 5 ,0 3 3 5 ,1 8 2 5 ,0 7 7 5 ,4 6 4 2,740 2,621 5 ,3 6 1 2,737 2,724 5 ,4 6 1 5 ,8 8 8 6 ,2 3 3

United Kingdom 733 943 930 1 ,0 2 4 513 809 1 ,3 2 2 893 982 1 ,8 7 4 1 ,9 1 5 1 ,9 7 0

Europe 3 ,3 5 8 5 ,4 2 4 6 ,3 9 6 6 ,8 4 0 3,439 3,625 7 ,0 6 4 3,524 3,653 7 ,1 7 7 7 ,7 0 1 8 ,0 1 0

EBI TDA 1 ,3 9 1 1 ,6 5 4 1 ,8 4 4 2 ,0 5 4 953 878 1 ,8 3 0 1,042 1,144 2 ,1 8 6 2 ,4 9 2 2 ,7 2 5

Asia Pacific 901 970 780 855 408 306 714 413 437 850 1 ,0 0 4 1 ,1 7 0

United Kingdom 104 90 166 181 10 70 80 103 160 263 335 364

Europe 386 595 898 1 ,0 1 7 535 502 1 ,0 3 7 527 547 1 ,0 7 4 1 ,1 5 4 1 ,1 9 0

D&A 392 445 892 921 463 476 939 472 495 967 1 ,0 3 2 1 ,0 9 4

EBI T 999 1 ,2 0 9 952 1 ,1 3 3 489 402 891 570 649 1 ,2 1 9 1 ,4 6 0 1 ,6 3 2

Net interest 208 151 417 391 186 167 353 208 208 417 405 353

P r e - t a x pr ofit 792 1 ,0 6 0 605 742 326 235 560 362 440 802 1 ,0 5 6 1 ,2 7 9

Tax 236 329 209 227 101 58 159 112 137 249 327 396

Minorities 57 68 104 132 50 55 105 49 63 112 120 119

Cor e NP AT 499 663 337 449 159 151 310 200 282 482 656 763

Cor e EP S 2 .7 9 2 .8 6 1 .5 6 1 .9 3 0.68 0.65 1 .3 2 0.86 1.23 2 .0 9 2 .8 7 3 .6 7

Operating cash flow 995 903 1 ,6 8 1 1 ,4 8 1 2,046 536 2 ,5 8 2 649 764 1 ,4 1 3 1 ,6 6 7 1 ,8 5 2

R e v e nue gr owt h 11% 27% 7% 7% 1% 5% 3% 7% 4% 6% 7% 5%

Asia Pacific 7% 3% -2% 8% -1% -3% -2% 0% 4% 2% 8% 6%
United Kingdom 141% 29% -1% 10% 7% 49% 29% 74% 21% 42% 2% 3%
Europe 4% 62% 18% 7% 2% 4% 3% 2% 1% 2% 7% 4%

EBI TDA gr owt h 6% 19% 11% 11% -8% -13% -11% 9% 30% 19% 14% 9%
Asia Pacific 11% 8% -20% 10% -1% -31% -17% 1% 43% 19% 18% 17%
United Kingdom -8% -14% 85% 9% -89% -20% -56% 931% 128% 228% 27% 9%
Europe -1% 54% 51% 13% 0% 4% 2% -2% 9% 4% 7% 3%

EBI TDA ma r gins 1 5 .2 % 1 4 .3 % 1 4 .9 % 1 5 .4 % 14.2% 12.4% 1 3 .3 % 14.6% 15.5% 1 5 .1 % 1 6 .1 % 1 6 .8 %

Asia Pacific 1 7 .9 % 1 8 .7 % 1 5 .4 % 1 5 .6 % 14.9% 11.7% 1 3 .3 % 15.1% 16.0% 1 5 .6 % 1 7 .0 % 1 8 .8 %
United Kingdom 1 4 .2 % 9 .5 % 1 7 .8 % 1 7 .7 % 1.9% 8.7% 6 .1 % 11.6% 16.3% 1 4 .0 % 1 7 .5 % 1 8 .5 %
Europe 1 1 .5 % 1 1 .0 % 1 4 .0 % 1 4 .9 % 15.5% 13.8% 1 4 .7 % 14.9% 15.0% 1 5 .0 % 1 5 .0 % 1 4 .9 %

% of gr oup r e v e nue s
Asia Pacific 55% 45% 41% 41% 41% 37% 39% 38% 37% 38% 38% 38%
United Kingdom 8% 8% 7% 8% 8% 11% 10% 12% 13% 13% 12% 12%
France 37% 47% 52% 51% 51% 51% 51% 49% 50% 49% 50% 49%
Group EBITDA 15% 14% 15% 15% 14% 12% 13% 15% 16% 15% 16% 17%
Depreciation 4% 4% 7% 7% 7% 7% 7% 7% 7% 7% 7% 7%
Operating cash flow 11% 8% 14% 11% 31% 8% 19% 9% 10% 10% 11% 11%
Core NPAT 5% 6% 3% 3% 2% 2% 2% 3% 4% 3% 4% 5%

Source: Wilsons.

Wilsons Equity Research Page 5

29 August 2022 Healthcare
Ramsay Health Care Limited

Valuation
 Reverting to DCF with M&A bid fading

With the KKR bid for Ramsay in doubt we revert to a DCF valuation methodology for Ramsay. We have
reviewed our approach to beta estimation in recent work. Briefly, our approach is based on a ‘sector beta’
which derive from XHJ versus XAO (weekly returns over 5 years). We assess a raw, levered beta of 0.838
for XJH and an unlevered (asset level) beta of 0.636. For Ramsay we re-lever to FY23e capital structure
assessing ‘levered’ beta ~1. Figure 4 shows free cash flow forecasts to FY32e terminal year. Figure 5
provides a summary of all relevant DCF data supporting a valuation and price target of $72.00 per share.

Figure 4. Free cash flow estimates FY23-32e.

FY 2 3 E FY 2 4 E FY 2 5 E FY 2 6 E FY 2 7 E FY 2 8 E FY 2 9 E FY 3 0 E FY 3 1 E FY 3 2 E

EBIT (1-t) 842 1,008 1,126 1,137 1,175 1,213 1,253 1,299 1,464 1,636

D&A 948 996 1,072 1,126 1,175 1,205 1,235 1,265 1,390 1,554

Chg W/C (108) (93) (169) (171) (176) (182) (188) (195) (220) (245)

Capex, acquisitions (1,250) (1,200) (1,300) (1,350) (1,400) (1,450) (1,500) (1,550) (1,600) (1,650)

FCFF 432 711 729 743 774 786 800 820 1,034 1,295

Cumulative WACC 108% 116% 124% 134% 144% 155% 166% 179% 192%

P V FCFF 401 615 586 555 539 508 481 459 538

Te r mina l v a lue 3 2 ,1 6 5

Source: Wilsons.

Figure 5. DCF calculation summary

Y /E Jun, AUD

Ca lcula t ion Assumpt ions

Cost of equity % 4.3% Risk free rate % 3.0%

Cost of debt (post-tax) % 3.0% Equity risk premium % 6.0%

WACC (post tax) % 7.5% Corporate tax rate % 31.0%

PV of FCF forecast (10 yrs) $m 4,684 Beta (unlevered) x 1.0

PV of terminal value $m 16,741 Target Gearing (D/D+E) % 25%

Enterprise value $m 21,425 Terminal growth assumption % 3.5%

- TV as % EV % 78%

Net debt / (cash) $m 4,944

Investments $m 0.0

Equity value $m 16,481

SOI (fully diluted) M 228.9

Equit y v a lue p/sha r e $m 7 2 .0 0

Source: Wilsons.

 Earnings capitalisation insights

Figure 6 at right examines the EV/EBITDA multiples for Figure 6. Disaggregation of DCF by jurisdictional EV/EBITDA (FY24e basis)
Ramsay’s Australasian and ROW earnings implied by DCF. We
FY 2 4 e EBI TDA ($ m) EV/EBI TDA (x ) EV ($ m)
have chosen FY24e as a basis for ‘normalised’ expectations. If
one ascribes the median ‘sector’ FY24e EV/EBITDA multiple Australasia 1,004 8.9x 8,884

(8.4x see Figure 7 over the page) to Ramsay’s ROW EBITDA, ROW 1,488 8.4x 12,503
the analysis implies ~8.9x EV/EBITDA for Ramsay’s
Gr oup EV ($ m) 2 ,4 9 2 8 .6 x 2 1 ,3 8 7
Australasian EBITDA. This ~6% premium is modest compared
to historical levels (often a 3-point valuation gap exists given Ne t de bt ($ m) 4 ,9 0 6

the Australasian assets’ unique characteristics: market share, Equit y v a lue ($ m) 1 6 ,4 8 1

pricing power and freedom for brownfield development with
Equit y v a lue pe r sha r e ($ /sha r e ) 7 2 .0 0
direct ownership of hospital land and buildings).
Source: Wilsons.

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29 August 2022 Healthcare
Ramsay Health Care Limited
Figure 7. International listed private hospital provider valuation benchmarks
Ticke r EV/EBI TDA P ER (nor m.) EBI TDA ma r gin

Compa ny Na me FY + 1 FY + 2 FY + 3 FY + 1 FY + 2 FY + 3 FY + 1 FY + 2 FY + 3

I nt e r na t iona l pr iv a t e hospit a l ope r a t or s

HCA Healthcare Inc HCA 9.6x 9.2x 8.7x 18.6x 11.4x 11.9x 20.0% 19.8% 19.9%

Tenet Healthcare Corp THC 7.3x 6.9x 6.5x 11.7x 9.4x 9.3x 17.8% 17.7% 18.1%

Universal Health Services Inc UHS 8.9x 8.3x 7.8x 9.8x 8.6x 10.2x 12.4% 12.7% 12.8%

Spire Healthcare Group PLC SPI.L 9.6x 8.5x 7.9x 82.9x 211.9x 50.9x 18.3% 19.4% 19.9%

Rhoen Klinikum AG RHKG.F 9.0x 8.9x 8.6x 83.9x 65.2x 47.6x 6.5% 6.3% 6.3%

Mediclinic International PLC MDCM.L 8.2x 7.8x 7.4x 19.0x 35.0x 21.6x 16.9% 17.3% 17.5%

I nt e r na t iona l me dia n 9 .0 x 8 .4 x 7 .8 x 1 8 .8 x 1 1 .4 x 1 6 .7 x 1 7 .4 % 1 7 .5 % 1 7 .8 %

R a msa y He a lt h Ca r e L t d R HC.AX 9 .5 x 8 .6 x 8 .2 x 4 0 .5 x 3 5 .3 x 5 0 .3 x 1 4 .9 % 1 5 .6 % 1 5 .7 %

Source: Refinitiv, Wilsons.

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29 August 2022 Healthcare
Ramsay Health Care Limited

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Wilsons Equity Research Page 8