Shares in financial services group Discovery closed near five-year lows on Monday, as the market continued to price in the effects of government reforms that some critics say could destroy private health care in SA.
Discovery’s share price closed at R105.72, down 8.44%, the second day of big losses for the share since the long-awaited National Health Insurance (NHI) Bill was unveiled by government on Thursday. The bill is the first piece of enabling legislation for the government’s plans to implement universal health coverage, which promises to provide services to everyone free at the point of care. It has also thrown into doubt the future of private medical aid schemes.
Since the NHI news broke last week, Discovery’s shares lost a total 16.22%, chopping about R13.5bn from its market capitalisation, which was sitting at R69.54bn at Monday’s close.
On Tuesday morning, Discovery’s slide continued, with the company down a further 0.86%.
Since the beginning of July, Discovery’s share price has lost 32.09%, while over the same period the JSE’s health care index has lost 10.32% and the all share 5.52%.
Discovery’s subsidiary, Discovery Health, is one of SA’s biggest medical scheme administrators and is a significant contributor to the group’s profits.
In the six months to December, Discovery reported a total net profit of R2.3bn, with Discovery Health posting an operating profit of R1.4bn.
Paul Theron, founder and CEO of Johannesburg-based money manager Vestact, said the threat to the medical aid administration posed by the government’s latest health care proposals was the reason for Discovery’s price fall last week.
“The ANC government’s latest brainwave is called the NHI, and if it is ever implemented, will basically nationalise private health care in SA,” said Theron.
“Instead of fixing the state system, which is riddled with corruption, mismanagement and poor medical outcomes, the ANC government seems determined to ruin the part of our health care system that works well,” he said.
“Remember that the state health care system is already expensive by developing country standards and funded by taxpayer contributions.”
Warwick Bam, analyst at Avior Capital Markets, agreed that the fall in Discovery’s share price was due to uncertainty around the NHI Bill.
However, Bam said in the long run the actual effect of any NHI legislation on Discovery was “ambiguous”. In its existing format, the bill leaves too many questions about what the restrictions will be on private insurers, and whether people will have the ability to choose their medical aid provider.
Sasfin deputy chair David Shapiro said he was not convinced Discovery’s share price weakness could be completely attributed to the NHI Bill.
The company’s share price had fallen nearly 30% since the end of June, well before the latest details of the NHI came to light.
“NHI, I can understand a 5% or 10% drop, but this is far too big. There’s something else going on here.”
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