Weekly Reports | Feb 16 2018
Weekly Broker Wrap: hospitals & health insurers; supermarkets; diagnostic services; Carbonxt; and Oneview.
-Brokers suggest decline in private health insurance participation will continue
-Lower Australian hospital volume growth being factored into major private operators
-Competitive impact of Aldi roll out in SA and WA appears less significant
-Macquarie initiates coverage of Sonic Healthcare and Primary Health Care
-Carbonxt obtains key market opportunity in the US
By Eva Brocklehurst
Hospitals & Health Insurers
Credit Suisse, on the back of APRA statistics for the December quarter, estimates private hospital industry revenue grew 3.1% in the first half of FY18, down from 5.0% growth in the prior half-year. Hospital treatment, as a percentage of the population, declined around -20 basis points to 45.6%.
The broker does not believe the government's reforms to the health insurance industry will fundamentally alter current affordability issues for private health insurance. As long as premiums continue to inflate at a faster rate versus wages growth, and the public hospital system provides an alternative, the decline in participation is likely to continue.
UBS agrees the long-term fundamentals are broadly unchanged, and private health industry volumes are unlikely to return to trend in the absence of stabilising private insurance participation or policy intervention to stem the flow of private patients to public facilities.
The broker notes, while a declining penetration rate is noteworthy, and likely to be a continuing feature of the industry, more relevant to medium-term profitability for the listed private health insurers is the pick-up in claims inflation. This rose to 5.1% in the December quarter after 1.9% in the September quarter.
Notwithstanding higher claims inflation, industry net margins finished at a firm 5.2% in 2017. The broker expects this aspect to become increasingly politicised following the ALP's commentary pointing to company profitability in its recent statement on private health insurance.
Macquarie notes premium growth continues to exceed claims growth on a year rolling basis, as per the APRA data. Switching remains elevated and newcomers to private health insurance continue to moderate. Downgrading continues.
The broker believes a lower Australian hospital volume growth environment is being factored in to the major private hospital operators, such as Ramsay Health Care ((RHC)) and Healthscope ((HSO)).
At a state level, the broker observes volume growth in Victoria did exhibit an improvement in the December quarter, although weak comparables were being cycled. Healthscope has a higher relative exposure to Victoria compared with Ramsay.