Ramsay Health Care: Shares Remain Undervalued

We maintain our AUD 68 fair value estimate and earnings estimates for narrow-moat Ramsay Health Care. The shares have declined roughly 15% since reporting in February and currently trade at a 31% discount to our fair value estimate. We think the market has a myopic view of Ramsay’s profitability, driven by inflationary concerns. We expect margin recovery as Ramsay has negotiated higher rates for both private and public work, activity trends in higher-margin work are recovering, and staff availability is increasing. We also expect a significant fiscal 2024 second-half seasonal skew in Europe supported by a French tariff increase from March 1.