Corporate Action: Ramsay Raises Equity at a Price Comparable to our FVE; Recommend Not Subscribing

Given the government financial underpins for private hospitals in all major Ramsay geographies we were surprised by the AUD 1.4 billion equity raise, an additional 10% of shares on issue, announced today. The stated intention for the share issuance is to provide financial flexibility and we interpret this as the company seeking making opportunistic acquisitions. We believe the returns on acquisitions outside of Australia have historically diluted overall group returns on invested capital and are thus skeptical of the strategy, although in the near-term the proceeds will be used to pay down debt. We continue to forecast the company will post no operating profit for the final quarter of the financial year, but now expect the impacts in the U.K. and France to continue through into the first half of fiscal 2021. A function of the government agreements is that narrow-moat Ramsay effectively earns no profits when acting in this capacity. Consequently, we trim our fair value estimate to AUD 57 from AUD 60.