Ramsay Loses on Elective Surgeries But Government Underpins Viability, Reduce FVE to AUD 60

We update our outlook for narrow-moat Ramsay factoring in an estimated three-month cancellation of nonurgent elective surgeries in Australia and the recently announced federal government’s viability for capacity guarantee. The Australian government has enlisted private hospital operators to make all facilities and medical staff available to treat COVID-19 patients and other public hospital overflow in exchange for a guarantee that ensures the hospital provider remains viable once the pandemic is over. We trim our fair value estimate to AUD 60 from AUD 63 on the basis that around 60% of Ramsay Australia’s case mix is highly profitable elective surgeries and we assume that government support merely returns the business to break-even while operating under its direction. Importantly, we don’t expect Ramsay to declare a dividend at the end of fiscal 2020, and anticipate dividend payments to resume in fiscal 2021.