Ramsay Health Care (ASX:RHC) share price climbs after this announcement – The Motley Fool Australia

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The Ramsay Health Care Limited (ASX: RHC) share price has lifted this morning after the company announced a new contract in the United Kingdom.

At the time of writing, the Ramsay share price is up 0.98% at $63.11.

What did Ramsay announce?

In today’s release, Ramsay advised it has signed a new volume-based agreement with NHS England (NHS). Ramsay will make its services available to the NHS to help meet the ongoing COVID-19 demands.

The NHS, or National Health Service, is the United Kingdom’s publicly-funded healthcare system.

The new agreement will run from 1 January to 31 March next year, unless terminated earlier on 6 weeks’ notice. It replaces an existing cost recovery agreement with NHS, which completes on 31 December 2020.

The company says NHS may trigger a peak surge period on 7 days’ notice, should Ramsay’s capacity be required to enable the NHS to respond to COVID-19 cases.

In these circumstances, the affected hospitals will be paid on a cost recovery basis.

Quick take on Ramsay Health Care

Ramsay Health Care is a global private hospital provider. Its facilities cater for a broad range of health care needs from primary care to highly complex surgery, as well mental health care and rehabilitation.

Ramsay Australia has around 36% market share of the private hospital market in Australia, with demographic positioning skewed to urban and mid- to high-income areas.

The Australian business has been a good cash generator for the company, as more Australians are on private health insurance (PHI) compared to our European counterparts.

According to recent data from APRA (Australian Prudential Regulatory Authority), 45% of Australians have PHI. In addition, more than 80% of private hospital revenue in Australia comes from private insurance.

This compares with 20% private insurance revenue in the United Kingdom and France, and 10% in the Nordic countries.

The cash revenue generated from Ramsay’s Australian business has enabled the company to expand overseas. Its most recent acquisition is the Swedish-based private hospital company Capio.

How has the Ramsay share price performed in 2020

The Ramsay share price is down 9.5% in 2020. The company delivered net profit after tax (NPAT) of $337 million for FY20, compared to $591 million for FY19.

However in its latest first-quarter update to the market, Ramsay Australia reported a 1.5% increase in total revenue during the first quarter of FY21. This reflects a 1.7% increase in surgical admissions.

Overseas, Ramsay UK business has also experienced a recovery in private care in recent months.

Given near-term uncertainties however, Ramsay declined to give any guidance for fiscal 2021. The company commands a market cap of $14.3 billion.

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Motley Fool contributor Eddy Sunarto has no position in any of the stocks mentioned. The Motley Fool Australia has recommended Ramsay Health Care Limited. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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