Key financial analyst Morningstar is having a bet each way on Ramsay, Sonic and Sigma, predicting that although they all have ageing business models they remain well positioned to weather the impending government MBS review and other efficiency based programs which will likely follow. “The health-care sector will confront significant changes under impending funding reform in Australia,” according […]
Key financial analyst Morningstar is having a bet each way on Ramsay, Sonic and Sigma, predicting that although they all have ageing business models they remain well positioned to weather the impending government MBS review and other efficiency based programs which will likely follow.
“The health-care sector will confront significant changes under impending funding reform in Australia,” according Morningstar health-care and analyst Chris Kallos. “However, not all stocks will be adversely impacted by health reforms, he says. In fact, some are even positioned to grow as a result of these reforms and be part of the government’s 21st century health-care system.” According to Kallos, the move to strip costs out of the public hospitals, the Medicare levy and continuing government support of private health insurers are all tangible moves towards backing private hospital providers, in particular Ramsay.
“We expect the support for private health insurance to remain intact for the foreseeable future, given the already high cost of operating public hospitals, which in turn provide a high degree of protection for private hospitals,” Kallos says. Sonic is favoured because it has managed to source more than 50% of its revenues, mostly still pathology and radiology, in Europe and the US, thus bypassing Australian trends altogether. But the surprise pick possibly, is back-from-the-dead pharmacy wholesaler, Sigma Pharmaceuticals.
While acknowledging that the sector faces major challenges from changes to the PBS and likely ownership rule reform Kallos thinks that the deregulation of retail pharmacy ownership structures will be positive for pharmaceutical wholesalers given existing logistical capabilities and access to retail gross margins. This is despite the threat of entry by the large and well-funded supermarket chains. “This would see gross margins move close to 37 per cent from around 7 per cent currently,” he says. “A company like Sigma Pharmaceuticals is positioned to benefit from these changes. The company has built its revenue away from the PBS.”
