Justin Ash is one of the few Britons not worried about the lengthy queues for NHS care: “Record waiting lists have led more people to prioritise their health and choose independent providers.” So says the boss of Spire Healthcare, which owns 39 UK private hospitals. Its website is bolder, shouting “your health doesn’t have to wait”.
It does for those who can’t afford its bills — a Spire hip replacement in London costs “from £13,540”. But about 6.5 million people are waiting for routine NHS hospital treatments, and that’s a lot of potential private patients for Spire, which was founded with the acquisition of 25 ex-Bupa hospitals in 2007.
Turnover hit £1.1 billion last year, up a fifth on the previous year, in part due to more patients choosing to pay for their own operations, rather than relying on insurers. Self-pay revenues more than doubled to £292 million, accounting for more than a quarter of turnover.
Spire is also capitalising on more outsourcing from the NHS, which began using its services in the Covid crisis, including as cancer hubs. The firm told investors last week that its dividend, suspended during the pandemic, could return as soon as next year.
The shares, which sank to 52p as the virus took hold, are now back at 235p but look to have further to run. “The mid to long-term prospects are very healthy” is the verdict of Miles Dixon at investment bank Peel Hunt; he has a 295p target price.
Spire is spending about £80 million upgrading MRI and CT scanners and expanding capacity with new operating theatres and Mako surgical robots. But it is also improving the balance sheet, cutting bank debt by almost 30 per cent to £224 million last year. However, there are shadows on Spire’s diagnosis: rising wage costs — heightened by shortages of healthcare staff — will have an impact. That said, health spending is not discretionary for consumers if free care isn’t easily available.
Grace Lee at investment bank Jefferies is worried about how long the current elevated demand for self-pay procedures can last as the cost-of-living squeeze bites, as well as about staffing challenges hindering Spire’s ability to increase its capacity significantly. Yet there is the possibility of another big boost for Spire investors: the prospect of takeover activity.
The firm’s shareholders rejected a bid from the Australian hospital operator Ramsay last year, but another deal could yet emerge. Bankers at RBC picked Spire last week as one of the UK mid-cap health firms “vulnerable” to a private equity takeover. Buy Spire.
