Netcare, SA’s third-largest private hospital operator by market value, says its adaptation to Covid-19 conditions has provided for a steady improvement in its profits, even as it dealt with a third wave of the pandemic, SA’s most severe to date.
Netcare, whose focus is almost entirely on SA, said in a trading update it expects core profit to rise as much as 26%, about R665m, in its year to end-September. But it warned shareholders that while now more flexible it remains concerned about new variants of the virus and the slow pace of vaccination in SA.
Like peers Life Healthcare and Mediclinic, the group said it was seeing an encouraging return to elective surgeries in the wake of SA exiting its third wave in October. However, that was not enough for the market and Netcare’s shares lost 2.42% to end at R16.10 on Friday.
The results appear to miss analysts expectations, said Aeon Investment Management portfolio manager Zaid Paruk, primarily because the group’s margins were lower than those of its peers. “The hospital sector appears to be over the worst for now, with better occupancies and theatre time achieved, but further Covid-19 waves remain a key risk,” he said.
The pandemic hit SA’s private hospitals hard, with many patients deferring elective surgeries, and Netcare’s trading update indicates that core profit is still down about a quarter from before the pandemic.
Covid-19 has prompted additional expenditure on equipment, such as for health and safety, while other effects have included a fall in revenue from coffee shops and parking fees.
Each successive wave has proved more severe than the preceding one, Netcare said, as evidenced by the number of Covid-19 admissions during the six months to end-September exceeding that of the prior six months, and they exceeded those of the second half of the group’s 2020 year.
The company said it had benefited from experience gained since the onset of the pandemic, which has contributed to reducing the length of stay for Covid-19 patients, as well as a more refined approach to bed allocation.
Notwithstanding the substantial increase in admissions during the third wave, only 52% of beds were allocated to Covid-19 patients, reflecting a marked improvement from 60% in the second wave and 80% in the first wave, the group said.
“Following the pattern of Covid-19 experienced globally, we are mindful of the possibility of the outbreak of a fourth wave in SA, which the current low level of vaccination uptake could exacerbate in the short to medium term.
“However, as the number of vaccinated South Africans increases, expectations are that non-Covid-19 activity will strengthen and Covid-19 activity will reduce, though new variants may counteract such an outlook,” the group said.
Annual revenue is expected to rise as much as 12.4% from 2020’s R18.8bn, but this would still be about 2.2% lower than before Covid-19.
Debt was trimmed by R1.1bn to R5.3bn, Netcare said.
Update: October 22 2021
This article has been updated with analyst comment and the share price.
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