Ramsay shares would soar from Ramsay Sante sale: analysts

Macquarie analysts believe Ramsay Health Care’s share price will strongly benefit from a sale of its $1.7bn majority stake in European hospital operator Ramsay Sante and real estate assets.

Macquarie analysts believe Ramsay Health Care’s share price would strongly benefit from a sale of its $1.7bn majority stake in European hospital operator Ramsay Sante and real estate assets.

There is now a focus on asset sales by Ramsay after Kohlberg Kravis Roberts bid $20bn for the business earlier this year but did not put forward a binding offer at that price after carrying out due diligence, causing the possible buyout not to happen.

Ramsay’s lucrative real estate portfolio has been seen as a draw card for private equity, yet one of the obstacles for a buyout of Ramsay for KKR was the challenge it faced gaining due diligence for its European operation, Ramsay Sante, of which Ramsay Health Care owns 53 per cent.

The way it played out showed Ramsay’s stake in Ramsay Sante creates a mechanism to ward off takeover suitors, given its complexities and the need for French regulatory approval.

KKR relied on Ramsay to grant it access to Ramsay Sante, rather than approaching the company’s board, which had the sole authority to grant due diligence.

A sale of Ramsay Sante would likely make Ramsay Health Care, which is the country’s largest private hospital operator, more attractive to a potential buyer, according to some because it would not have to deal with the challenges.

Macquarie analyst calculations assume a $3.2bn equity value of Ramsay Sante or $4.5bn including debt from a sale of the French business.

The sale creates an opportunity for an improved return on invested capital, Macquarie analysts said.

“Applying a multiple of 12.5 times earnings before interest, tax, depreciation and amortisation for the Australian business, combined with Ramsay Sante sale proceeds, would provide a valuation of about $72.00, 15 per cent ahead of the current share price,” the analysts said in a research note.

They also estimate a value of about $8.5bn for Ramsay’s Australian property assets, with a 5 per cent capitalisation rate.

Based on calculations, Macquarie analysts assume Ramsay’s Australian operating business is worth $3.1bn, which sees Ramsay Australia worth 11.9 times earnings before interest, tax, depreciation, amortisation and restructuring and rent costs.

This is a 10 per cent premium to the price that Ramsay’s rival, Healthscope, sold to Brookfield for, and equates to $84 per share, which is 35 per cent ahead of the current share price at the time Macquarie delivered its research.

Earlier this month, Ramsay said it was exploring the sale of some of its hospitals, but would not offload its French business and was not in discussions with any party.

However, sources close to Ramsay indicated last week that parties had earlier been interested acquirers in Ramsay Sante, and as earlier reported by DataRoom, it is understood that Fresenius Helios was in talks to buy the business before walking away.

Advisory firm Rothschild & Co had been advising on Ramsay Sante.

DataRoom understands that Ramsay is considering a sale of about a quarter of the properties within its portfolio.

Ramsay Sante attempted to engage with KKR when it was looking at Ramsay, sending it a list of questions about its intentions for the company.

But KKR did not provide responses, The Australian reported earlier this month.

Complicating matters further is the fact KKR owns Ramsay Sante’s competitor Elsan, making Ramsay’s French arm reluctant to open its books to the New York-based private equity giant.

In the three months to September 30, Ramsay Sante’s earnings before interest, tax, depreciation and amortisation fell 16.4 per cent to €110.2m, which chief executive Craig McNally said reflected a €14m lower contribution from pandemic-related government revenue and cost support and the “direct effect of inflation and higher labour costs due to staff shortages”.

But earlier this month he said he was upbeat about its longer-term prospects, as labour shortages improved in France.

Overall, Ramsay reported a 6.7 per cent rise in revenue to $3.4bn in the three months to September 30. Meanwhile, net profit eased 1.2 per cent to $57.4m.

Ramsay shares were down 0.2 per cent to $63.13 on the ASX late Tuesday morning.