Ann: Presentation FY2018 Results Briefing, page-5

@thunderhead1,

It was a weak result, but I don't think that there would be an investor alive who follows this company, who expected anything other than a weak result.

There is clearly a great prevalence of investors who frame their investing decisions in relation to publicly-listed companies on the basis of whether companies are going to "beat" or "miss" consensus numbers, or on the tone of "outlook" statements.

On the other hand, I tend to be largely agnostic to "consensus forecasts" and "outlook" statements, because I have found that there are very few people who can invest successfully, by guessing these things correctly, on a sustainable basis.

When I look across the portfolio of stocks I own, there is not one of them that, at some stage, did not "miss" consensus forecasts, or experience some sort of headwinds which diminished their "outlook" at the time.

I remember CSL being sold off heavily after at one stage receiving a warning from the FDA, REH being sold off when the housing cycle fell, ARB falling because a spike in steel prices impacted its Gross Margins, BRG being sold off when a distribution agreement was cancelled, DLX being sold off when the company made an acquisition that didn't seem to be very smart, ASX get sold off when Chi-X opened for business... I can go on and cite many such examples when short term headwinds have impacted companies.

Yet each of those businesses when on the become fundamentally more valuable over time.

Sure, sometime in the next 1, 2, 3 or 6 months the stock price might get to $53, or $52, or heck, it might even fall below $50. Who knows what share prices are going to do in the short-term? I certainly have very little idea.

But my view is that Ramsay will - in five years' time - be a larger business than it is today (and, five years after that, it will be larger still).

Sure, at the moment there are some unfavourable, attention-grabbing newspaper headlines featuring patients abandoning private hospitals in favour of the public system due to affordability issues, but - unless governments suddenly reverse their 3-decade long strategy of not building and operating new hospitals - there is only so far that the "From-Private-to-Public-Hospital" rubber band can stretch, before the state has to incentivise (read: subsidise) people back to the private sector.

I strongly suspect - with the public system already bulging at the seams - that we are fast approaching that point.

Why, I'll wager that we are not too far off An Australian Story or A Current Affair running stories about waiting lists at public hospital blowing out, or about over-stretched public hospital doctors having to work an 80-hour week, or about nurses being run off their feet and not having sufficient resources to be able to provide quality nursing care in the public hospital system.


In summary, I didn't buy RHC because of what happens - or doesn't happen - in any one or two particular financial years. I bought it because it is a very robust business, with a near-impossible to replace asset base, and structural demand tailwinds in the form of ageing demographics.

Nothing that is happening currently in the health care landscape has changed any of that. This is not the first time there has been a degree of ebbing and flowing in demand for private hospital services.


While people are free to get their knickers all knotted about an earnings "miss", or about weak "outlook" statement, I prefer to consider the situation in a broader context, which is:

Here is a business that is experiencing the mother of all business condition storms; just about everything that could be going wrong - whether in the UK, France or the jewel in the crown, viz., Australia - seems to be going wrong for RHC. For 99% of other companies, their earnings would be meaningfully impacted (if not absolutely crunched) if they experienced the sort of demand headwinds to which RHC is being subjected.

By contrast, RHC's EBITDA is growing at "only" 6%.

In other words:

Really Lousy Business Conditions = 6% growth in Operating Profit.

That, I think, is quite a statement about the quality and robustness of the business model.