Ramsay Remains Undervalued Following FVE Cut to AUD 65

We have cut our fair value estimate for narrow-moat-rated Ramsay Health Care, or RHC, by 14% to AUD 65.00 per share following a reduction in our long-term earnings growth forecasts and the transition of coverage to a new analyst. However, at the current market price of AUD 54.38, we continue to believe the shares are undervalued. We have incorporated the acquisition of Swedish healthcare firm Capio AB, by RHC’s 51%-owned subsidiary Ramsay Générale de Santé, or RGdS, into our forecasts. This has no impact on our fair value which implies RGdS has paid a fair price for the business. However, Ramsay’s eagerness to acquire Capio, and increase its bid price by 20% in the process, reflects revenue growth challenges in other areas of the group to some degree and partly influences our long-term earnings growth downgrade. While we’ve maintained our forecasts for the next five years, we’ve reduced our long-run growth expectations, leading to a lower terminal value than our prior valuation.