As the pandemic took hold, the unprecedented partnership announced in March between the NHS and private hospitals allowed vital cancer care and operations to continue. It also saved Spire Healthcare from disaster.
With much routine surgery put on hold, the private hospitals group, which runs 39 sites across the UK, could have gone out of business. Under the deal, the NHS covered Spire’s costs, such as wages and rents, while Spire treated NHS patients. Two of its hospitals were turned over to Covid care.
The deal is expected to carry on until at least the end of this year. But what does the future hold when it ends?
Before Covid-19, Spire was showing signs of recovery after a few torrid years. It is the UK’s biggest provider of “self-pay” healthcare, offering services to those who can afford to escape long NHS waiting lists. It swung to a profit last year and the proportion of its hospitals rated “good” or “outstanding” rose to 90%, up from 67% three years ago.
Spire has been a disaster for investors in the past. The shares are 47% below the price at which former private equity owner Cinven floated it in 2014. It is valued at £445m, down from £842m.
Spire, led by Justin Ash, has worked hard to mitigate the impact of the lockdown, amending its covenant tests with lenders and suspending its dividend. Last month, it reported revenues of £401.9m in the first half, down 18% on the same period last year.
It reported a pre-tax loss of £231.3m, from a £9.6m profit a year earlier. At the same time, it revealed that it had seen 120,000 patients under the contract with the NHS.
Spire is hoping that self-pay patients, who are typically older and blessed with more disposable income, will be less badly hit by recession than those forced to rely on the NHS.
However, there is the danger that people will delay non-essential elective care for fear of catching Covid-19. A second national lockdown would be a big blow.
The prospect of any Spire recovery rests on a rebound in people taking out private medical insurance. Rates have plunged this year.
Investment bank JP Morgan has a 175p target on the stock, which closed at 112p on Friday. Jefferies is more cautious with a 78p target — although its analysts reckon that in an “upside scenario” it could reach 125p.
Shares in Spire have outperformed the market. As NHS waiting lists stay long, the company will be keen to participate in tenders to move operations into the private sector. Yet Spire is in far from rude health, and the future is uncertain. Hold.
