UPDATED: Acurity shares surge to 11-month high as 3.4％ of company changes hands
Evolution Healthcare, the Australian private equity healthcare company which owns Boulcott Hospital in Lower Hutt, is buying shares in Acurity Health which owns rival Wakefield Hospital.
Shares in private hospital group Acurity Health jumped 36 percent to an 11-month high as about 3.8 percent of the stock changed hands at $5.50.
Evolution Healthcare "is obviously trying to buy a large stake in Acurity Health," said Bryon Burke, head of equities at Craigs Investment Partners. Burke said Evolution was paying a premium to get volume although he didn't know how big a stake was being sought.
Evolution also owns Shellharbour Private Hospital, South Coast Private and Canberra Private Hospital, according to the company's website. Managing director Ben Thynne wasn't immediately available for comment.
Shares in private hospital group Acurity Health [NZX: ACY] jumped to an 11-month high in early trading today as almost 3.3 percent of the company's shares on issue changed hands.
The stock climbed 36 percent $5.50, the highest since November last year, on turnover of about $3.3 million. That's a 3 percent premium to Acurity's net tangible assets, valued at $5.34 according to NZX data, but still cheaper than the $6 price paid by the Stewart family and the Royston Hospital Trust Board to take control of the company last year.
The spike comes 10 days after the Wellington-based company formerly known as Wakefield Health said underlying earnings were up by between 17 percent and 23 percent to a range of $3.3 million and $3.5 million in the six months ended Sept. 30 as the hospital operator clamped down on costs faster than it lost revenue. It will announce the full results on Nov. 4.
Forsyth Barr head of private wealth research Rob Mercer rates the stock a 'hold' with a target price of $5.40. He told BusinessDesk the health sector has good long-term growth underpinning it, with an ageing population likely to fuel demand for elective surgery procedures and feed private sector hospitals.
"The market conditions in the short-term weren't easy - you've had a sizeable shift in the take-up of private health, allocations of DHB and ACC work sub-contracted out to private hospitals, and you've also had the investment in bringing Bowen hospital up to full specifications," Mercer said.
"If you've got a short-term view it's not that interesting, but if you're taking a longer-term view, you're buying a pretty good business," he said.
Over the next five years, Mercer expects a turnaround in declining take-up of private services, as the ageing population puts pressure on what have been shorter waiting times for elective surgery in the public health system.
District health boards delivered about 158,500 elective surgical discharges in the 12 months ended June 30, more than 10,000 ahead of target, and delivering an average annual increase of more than 8,000 discharges over the past five years.
The government's annual spending on health has almost doubled to about $14.5 billion over the past decade, and has increased to 6.8 percent of gross domestic product from 5.5 percent in 2003, according to the Crown's 2013 financial statements.
Over that same 10-year timeframe, consumer prices for private hospital services has climbed 60 percent and health insurance premiums have risen 64 percent, according to government data.
In its long-term fiscal sustainability report, the Treasury predicts health spending to progressively rise to 10.8 percent of GDP by 2060. The government department says the country will need to make choices as to what is publicly provided as that cost balloons with an ageing population, and new and more expensive technology extending life expectancies.
Forsyth Barr's Mercer said there's an unlimited demand for government spending on healthcare, and that it will eventually have to focus on how it allocates that funding.
"The public sector should be for direct emergency care at the forefront, so that anyone who needs care right this minute can get it," Mercer said.