-Lower health claims flagged by nib
-Yet hospital growth seen solid
-Positive signals for gaming
-Material expansion likely for PSQ
-Brokers optimistic on US housing
By Eva Brocklehurst
Australian Health Care
The improved claims experience cited by nib Holdings ((NHF)) is difficult to extrapolate across the sector, Goldman Sachs maintains, given the company has less than 10% market share in private hospital operators and its policy holders are predominantly in NSW.
In theory, the broker notes, lower claims growth for health funds should mean lower revenue growth for the private hospital industry. Yet the December half revealed this is not necessarily the case in terms of lower revenue growth and/or margins for listed operators Healthscope ((HSO)) and Ramsay Health Care ((RHC)).
Although private hospital payments make up the bulk of health insurance claims, doctor fees and payments to ancillary services are also large segments. Goldman Sachs observes public hospitals also account for 10% of insurance payments to hospitals.
The broker observes anecdotal evidence suggests hospital volumes grew solidly for a number of operators in the March quarter. Hence, Goldman Sachs makes no changes to its Healthscope or Ramsay Health Care forecasts.
Victorian gaming machine expenditure rose by 2.3% in March, slightly below Deutsche Bank's expectations. The broker notes Crown Resort's ((CWN)) Melbourne casino expenditure is growing in excess of this rate.
After a strong FY15 the broker notes domestic gaming machine expenditure remains firm, with NSW, Queensland and Victoria all showing growth. Deutsche Bank believes this is a positive signal for the casino operators and equipment manufacturers.
The dental centres in the Pacific Smiles Group ((PSQ)) portfolio offer a superior consumer experience, in Morgan Stanley's opinion, and there is scope for five times the number of centres, supported by demand and low government funding risk.
There is flexibility for dentists and value for insurers as well, the broker maintains. The industry is considered to be large, fragmented and relatively defensive with corporatised models comprising a very small percentage. This presents scope for consolidation.
Morgan Stanley initiates coverage on Pacific Smiles with an Overweight rating and target of $2.50, expecting material expansion in the long-term margin and returns on investment.
US new home sales missed expectations in March. Morgan Stanley observes growth has been decelerating for the past four months. The broker notes around 75% of single family starts in the past year have been built for the “for sale” market. On that basis the March data signals a significant increase in sales is required to support the current level of building.
The broker remains positive on the US housing outlook, with mortgage purchase applications rising solidly to a six-year high monthly average in March. Despite expectations that James Hardie's ((JHX)) fourth quarter will show weaker volume growth, Morgan Stanley expects a solid profit outcome.
Deutsche Bank reduces housing starts forecasts by 2.0% for 2016 with forecasts for 2017 relatively little changed. This broker, too, remains optimistic on US housing despite the minor downward adjustments. Growth of 11% is expected in FY16 and FY17.
The broker makes minor changes to earnings estimates for Australian stocks on the back of the US data, with a 1.0% decline in its James Hardie target a result of Australian dollar translation. The broker believes the downside risks for Boral ((BLD)) include pricing weakness in cement and concrete in Australia as well as a slower-than-expected recovery in the Australian and US housing market.
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