South Africa’s ageing medical scheme population will provide long-term support for private healthcare companies, according to Sanlam Private Wealth (SPW). The wealth manager, which oversees more than R200 billion in assets, said that the private healthcare sector’s performance depends on economic growth and the demand for services.
SPW investment analyst Christiaan Bothma noted that economic growth could boost the sector. He said this growth could increase employment and lead to more people joining medical aid schemes. Another positive trend for the private healthcare sector is an ageing population within existing medical schemes.
Impact of an ageing population
While membership numbers aren’t growing, older members are expected to use more healthcare services over time, which could benefit hospitals. SPW sees Netcare as a company poised to perform well in this environment.
However, the potential impact of National Health Insurance (NHI) remains a concern for the private healthcare sector. The NHI aims to create a system where medical schemes are phased out, making the government the sole buyer of healthcare services from both private and public providers. This could reduce the pricing power of private hospitals, even if patient volumes increase.
Bothma added that while NHI poses risks to SPW’s investment case for Netcare, it believes significant changes are unlikely for the next decade due to funding challenges and legal opposition. NHI is expected to focus on clinics and primary healthcare, which may not directly affect private hospitals in the short term.
Potential challenges in the healthcare sector
However, concerns about NHI could lead to the emigration of medical professionals, impacting the sector. Despite these challenges, SPW finds Netcare’s valuation appealing due to its strong cash flow. The company’s earnings are almost entirely converted into cash, with minimal spending on new facilities, apart from expanding mental health services.
Bothma said without assuming significant growth in patient numbers, Netcare’s current market value could be repaid through dividends or buybacks within seven years, emphasising the potential for returns in the current market conditions.### Long-Term Support for Private Healthcare