Could this be the best healthcare company on the ASX?

I've finished taking a position in PPE and at the moment my thesis is that it represents one of, if not the best healthcare company of the ASX.

Deliberately controversial call but in my 10 years of investing I've never been as impressed with what PPE has done in the last few months. For the benefit of HC, this is why PPE is gold in my opinion and represents deep value in the years to come.

What does PPE do?

At a pure level, healthcare represents more than 50% of PPE's revenue. More importantly, PPE earns revenue through providing locum nurses and healthcare professionals to hospitals, nursing homes and other healthcare providers.

PPE over the last few months has made some extremely strategic moves in the market, Declan the CEO has got his ear to the ground in terms of the right providers in the right areas.

I've talked to several individuals in the industry and their opinions, NNA in NSW is one of the best nursing locum agency in NSW, VIS is quite good in Victoria and First Choice has rave reviews in QLD - PPE has acquired all these locum agencies in the last few months.

What defines best? For a hospital or nursing home, it's reliability and quality. Because of this, they are the preferred locum agencies and these locum agencies service the biggest public and private hospitals on the Eastern Seaboard. Those locum agencies manage to incentivise their locum employees by offering incentives for taking on X shifts with them and by having the most shifts available and offering a personalised service.

Locums are the equivalent of a substitute teacher in school. Some aren't great, but others are excellent and even better than your regular teacher. For Australia, we have a relatively high paying sector and most of our locum nurses and allied health care professionals are from the UK, where the NHS pays a paltry salary in comparison. On the whole, the UK locums are excellent and they easily assimilate into the Australian healthcare sector where they tend to come for a year or two as a holiday for the beautiful sun and holiday, with some staying on and setting up a life here.

The Drivers

Right now in Australia, we have ever-increasing demands on our healthcare system due to an ageing population. This means we will continue to have a consistent demand for nurses and other health professionals in our system. There are several drivers that will accelerate this demand, and getting locum nurses to meet this demand is the main way that the system will have to respond.

The first is that nurses have one of the highest unionisation of any profession, with the consistent call for better nursing ratios plaguing State Governments across Australia. In order to meet this nursing ratios, hospitals need to use locum agencies to bridge the gap. Furthermore, if you call in sick, the hospital either tries to cover these numbers internally or call in a locum agency to provide nurses at a premium rate.

The second is that the royal commission into ageing will report by October 2019. There is no doubt that the level of care provided in nursing homes is severely under-par, and a big part of that is because Nursing homes use enrolled nurses rather than Registered Nurses to cut costs. There is very little regulation around ratios and this is loosely followed. Already, we are starting to see a move to mandate experienced nursing staff to be present in nursing homes: https://www.abc.net.au/news/2019-07-19/federal-inquiry-qld-government-mandates-nurse-to-patient-ratios/11324674 Expect this to be the norm across all States.

The third is that healthcare itself is expanding. With an expansion in medical students of approximately 250% in the last decade, we will see more servicing in the healthcare system, and by extension we will need the nursing staff to provide the support in healthcare settings. Everytime the government approves a new indication for a drug on the PBS, remember that you will need the healthcare workers to provide the health care provision around this. This expansion is the cause by which costs are rising, and the reason by which private health premiums are rising, and membership is slowing. As people move to the public, expect PPE to only benefit as they hold significant strategic interests in the public system with the public contracts they hold through their agencies.

How does PPE's locum agencies make money?

All of this begs the question, how does PPE make revenue from locums. The hospital pays the locum agency who provides the locum. The locum as part of their contract is never allowed to work in that health district from the time they start working there. The nursing rates are comparable to the public system, but PPE gets a significant premium rumoured to be anywhere from 10-30% and going higher depending on the urgency for a locum and regionality/rural nature of the request. This is a lucrative business.

My Prediction
PPE is no longer just a generic human resources company, it is a Healthcare company that provide nursing locums to Australia's Eastern Seaboard. They have a position that is extremely enviable and in my opinion set to grow at several clips faster than any other healthcare stock due to its unique positioning in the market.