The New Realities and Private Healthcare

The editorial in this week’s Investors Chronicle was full of doom and gloom. Under the headline “Facing up to new realities” the editor said “The threats identified by the WEF (World Economic Forum at Davos) include climate change, the cost of living crisis, geopolitical confrontation, high debt levels, recession, low growth, social unrest and cyber crime. These crises are converging, it says, to shape a unique, uncertain and turbulent decade to come”.

All I can say is that I have seen all this before and the problems we face are actually relatively minor in comparison with the difficulties faced in previous decades. Having lived through the 1970s when the UK economy was on its knees, we only face minor handicaps now in my view. The WEF is talking us into a recession as when confidence in the economy falls then businesses stop investing for the future. But this is a temporary phenomenon and when we get out of the gloom of winter the picture may be a lot brighter.

Another interesting article in Investor’s Chronicle was on private healthcare which had the headline “Private care likely to boom amid NHS crisis” and I would not dispute that comment. It covered Spire Healthcare (SPI) one of the few medical companies that are UK listed. I was particularly interested in the article because Spire have recently acquired The Doctors Clinic Group who provide private GP services mainly in the London area. I actually used the service a month ago when I got fed up with trying to book an appointment with my NHS GP who have a dysfunctional web site and hopeless phone service. Doctors Clinic was a very efficient, slick and relatively low cost service which I would recommend. Appointments can be made and in person relatively quickly.

But the acquisition by Spire was a relatively small one for them. The financial results of Spire over the last eighteen months do not inspire confidence. Profit margins are poor with only “unadjusted” profits of £4.2 million on revenue of £598 million in the last 6 months. The results were apparently hit by cancellations due to the covid epidemic and staff absences for the same reason.

There is clearly great potential to expand the private GP service as people give up on the NHS but Spire seem to be no better than the NHS at operating a service that more than covers the costs of provision.  And this is one of those companies that “polishes” their financial figures by reporting Adjusted EBITDA and even adjusted cash flows so interpreting their financial figures is not easy.

Investors would have more confidence in the company if they focussed on unadjusted financial figures plus better profit margins and return on capital which have never been brilliant in the last decade.

Roger Lawson (Twitter: )

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