Ramsay Health Care has flagged a weaker than expected profit

The hospital operator’s shares dropped after it issued a warning it will deliver softer than expected annual earnings.

Ramsay Health Care’s profit will come in lower than expected.

Ramsay Health Care has flagged that it will deliver weaker than expected earnings for the full year when it reports later this month, while weaker than expected capital expenditure sends a “troubling signal”, one broker says.

The hospital operator, which is scheduled to release its full year results on August 30, told the ASX on Monday morning its underlying net profit was expected to be in the range of $265-$270m, compared with $278.2m the previous year.

Once the $618m profit on the sale of Ramsay Sime Darby is factored back in, this rises to $884m-$889m.

This year’s result will include writedowns booked against the value of underperforming assets in the company’s European arm Ramsay Sante and the UK region of $24.5m after tax, and a negative mark to market movement of $13.1m in relation to interest rate swaps in Ramsay Sante’s debt.

“As a result of the expected impairment charges and write downs, Ramsay’s FY24 depreciation, amortisation and impairments charge is expected to be slightly above the top end of the previously expected range of $1.0-1.$1bn at approximately $1.13bn,’’ the company said.

“Non-recurring items in total are expected to make a negative contribution to the result of approximately $29.5m after tax and minority interests.

“Greenfield and brownfield capital expenditure in the Australian region in FY24 was lower than the forecast range of $210-260m at about $155m.

“Total Group capital expenditure for the 12-month period was approximately $740m, below the forecast range of $0.8bn-$1bn.”

Wilsons Advisory said the results were weaker than expected.

“There is no divisional detail available, but our initial read is that activity levels have held up (recalling the better than expected 1H24) but pre-pandemic profitability levels may be unachievable,” Wilsons said.

“Capex investment levels were also subdued, sending a troubling signal.”

Wilsons said consensus underlying net profit was $300m, while its own estimate was $333m which was “a little stale’’, while Wilson added that Ramsay had not been a focus “given its lack of performance”.

“Although a modest miss in the FY24 context, the margin assumptions underpinning our 2H24 estimates were starting to bridge towards FY25-27 margin expansion stories, across all jurisdictions.

“We felt that was only achievable if brownfield returns could recapture their former greatness. “That aspect takes a hit today (subdued capex investment) as it speaks to Ramsay’s internal confidence on the outlook.”

Wilson said its forecasts for Ramsay were under review.

Macquarie said it had a neutral rating on Ramsay stock and would be looking for greater detail when Ramsay report on August 30.

“On balance, a weaker-than-expected second half/full year result (including and excluding one-off items),’’ Macquarie analysts said in a note to clients.

Macquarie has a price target of $50.10 on Ramsay, compared with Monday’s closing price of $45.20, down 12c.

Ramsay shares are currently trading near their 12-month low of $43.90, having fallen from highs above $57 a year ago and again at close to that mark in March.

Ramsay’s debt-to-earnings ratio at the end of the financial year is expected to come in at two times, which is within the target range of 2.5, the company said.

Ramsay last week announced it had tapped Woolworths executive Natalie Davis for the chief executive role, replacing long-serving managing director Craig McNally, with the transition to start on October 1.

Mr McNally has been with the company since 1988, with the past seven years as managing director.

Ramsay chair David Thodey said Ms Davis was appointed after a thorough global search.

“In carefully weighing Ramsay’s performance and strategy, the board made a conscious decision to select a proven and dynamic leader who has successfully mastered large-scale business transformation during periods of uncertainty and market disruption,’’ he said.

“Natalie’s strategic outlook and experience managing industry-wide changes in different markets makes her exceptionally well-suited to progress Ramsay’s strategy and skilfully accelerate our growth.’’