Asked at his retirement press conference in February whether he’d be selling his shares in the company, outgoing Ramsay Health Care CEO Chris Rex confirmed he’d be cashing in “some of them”. And three weeks later, he did – netting $27.2 million for 400,000 units. And while Rex “can’t imagine a situation where I don’t have a substantial sharehold in the company”, that leaves plenty of wriggle room. He’s still sitting on 806,213 ordinary shares worth $55.6m at Wednesday’s close. And come July 3, Rex will no longer have to inform the market of his trades. It’s only the promise of double-digit earnings growth that keeps Ramsay trading at its hallowed 25x multiple. But is that a realistic expectation for incoming chief executive Craig McNally in FY18? As with any new management team, there will be trash to take out. In France, the government has cut payments to private hospitals (of which Ramsay is the largest operator) by more than 2 per cent each year for the past three years while maintaining care funding to the public system. Vive la république! France accounts for 23 per cent of Ramsay’s group revenue. In Britain, the NHS is cutting even deeper (3.6 per cent of Ramsay’s funding from April 1), with less-exposed competitor Spire having already downgraded its FY18 guidance partly for this reason. And under the terms of its lease agreement with its British landlord, Secure Income REIT, Ramsay’s annual rent bill can increase by as much as $25 million from May 2017. A Ramsay spokesperson said the rental increase was still being negotiated but that “the impact … is unlikely to be in the order that you refer to”. Currency headwinds, even with hedging, are likely. And Britain’s nursing shortage is biting. At February’s interim result, Ramsay cited the use of agency nurses (on up to double the wages) as a factor in weaker margins. This will get worse as post-Brexit immigration measures come into effect. Here in Australia, Greg Hunt’s prostheses funding is yet to hit the bottom line. None of these things alone represents an existential threat to the company’s near-term prospects. Austerity in semi-socialised medicine isn’t new. But how long can incremental pain be absorbed and double-digit earnings growth maintained? A while yet, Rex will be hoping from his rocking chair. After all, he’s still got 589,181 unvested performance rights counting on it.
