The Ramsay Health Care Limited (ASX: RHC) share price is pushing higher on Wednesday.
In afternoon trade, the private hospital operator’s shares are up 1.5% to $63.83.
Why is the Ramsay share price pushing higher?
The Ramsay share price was given a boost today by a positive broker note out of Citi this morning.
In response to Ramsay increasing its takeover offer for Spire Healthcare in the UK, the broker retained its buy rating and $76.00.
Based on the current Ramsay share price, this implies potential upside of 19% excluding dividends over the next 12 months. This potential return stretches to almost 22% if you include them.
What did Citi say?
Citi notes that Ramsay has increased its offer for Spire Healthcare to 250 pence per share. This values the UK-based private healthcare company’s equity at GBP1,040 million (A$1,900 million), which is an increase of ~$75 million.
According to the note, the broker believes that for Ramsay to maintain its investment grade rating, it will need to raise somewhere in the region of $600 million to $1,000 million. However, this is already factored into its valuation.
In light of this, it is focusing on the future and suspects that a successful acquisition and integration of Spire and a recovery in healthcare demand could drive a re-rating of the Ramsay share price later this year.
Citi commented: “We previously calculated that for RHC to maintain its investment grade rating, it will need to raise ~$850m in capital (we assume a hybrid security), which we include in our forecasts. Given the variables, the final capital gap could be between $600m and $1bn.
“Our TP implies RHC should trade on FY23E (normal year) PE of ~23x. There is risk to the FY21 result given the pandemic and more recently Australian lock downs – post the August result, we believe the market will focus on the recovery phase and integration of Spire, which will result in a re-rating of the stock,” the broker concluded.
The post Ramsay (ASX:RHC) share price higher on bullish broker note appeared first on The Motley Fool Australia.
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More reading
- 2 growing ASX dividend shares named as buys
- 5 worst-performing ASX 200 healthcare shares of FY21
- ASX 200 drops, Myer soars, Ramsay down
- ASX 200 up 0.2%: Westpac asset sale, Ramsay increases Spire offer
- Ramsay (ASX:RHC) share price lower on UK acquisition update
Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has recommended Ramsay Health Care Limited. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.
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