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Fresenius bet that good health is always prized


Quality healthcare will always be a growing market

Quality healthcare will always be a growing market

Quality healthcare will always be a growing market

No smart investor ever made a packet by betting on long shots. 'Sure things' are the only safe way to guarantee optimum returns.

So when the certainty of modern life is that people want to live longer, quality healthcare will always be a growing market, especially in those parts of the globe where quality healthcare wasn't always the priority it is now.

That, I think, sums up the investor attitude to Fresenius, the German health care group which has been a listed company for the last 30 years.

The company has, as the phrase goes, 'been through the wars', being established over 100 years ago. It was also part of the German Economic Miracle of the 1950s. Its technology breakthroughs include launching its first dialysis machine in the 1960s. It has had other significant innovations since then and today it boasts revenues of €23bn. It runs 100 private hospitals with 30,000 beds, 3,500 dialysis clinics (three in Ireland) and has 178,000 employees in 100 countries.

The company has four businesses; medical care, therapy and clinical nutrition (Kabi), hospitals (Helios) and planning and construction for health care facilities (Vamed). The medical care business is the group's largest and separately listed.

It is the world's leading provider of dialysis services and products to treat chronic kidney failure, a condition that affects 2.5 million people worldwide. The business has 3,500 dialysis clinics (two-thirds in the US) and a global market share of 34pc. Dialysis services generated 75pc of the division's €11bn revenue with the US being the main contributor.

Fresenius also has a business, Kabi, specialising in therapy and the care of chronically and clinically sick people. Its portfolio includes infusion solutions, clinical nutrition, drugs for treatment of oncology and other critical diseases.

It also has a transfusion technology business which offers products used in the collection and processing of blood components. Its main markets are Europe and North America but - and this is what makes it a potentially exciting investment - it plans to expand its footprint to South America and Asia. As a result, it recently bought a Chinese firm, Yuan Medical, and entered a joint venture in Indonesia with Soho Global health.

The company's hospital arm (Helios) is the largest European private hospital operator. It has over 100 hospitals, 40 recently acquired from its rival, Rhon-Klinikum.

The hospital business has revenues of €3.4bn and net income of €275m.

It may be consoling that everyone in Germany is now within an hour's drive from a Fresenius Helios facility. Its smallest division, Fresenius Vamed, is a worldwide provider of services in planning, construction and managing health care facilities.

Revenues in 2014 exceeded €1bn with Europe, accounting for three-quarters.

Since its foundation in the early 1980s, it has completed 650 projects in 70 countries.

The group's business is a reflection of how healthcare is changing. A decade ago, Fresenius sales were €7bn, today revenue is €23bn, net income was €220m and now it exceeds €1.1bn. The group is optimistic for this year, expecting sales and net income growth of between 7pc and 10pc. Fresenius is targeting sales of €30bn in 2017 and group income of €1.4bn, mainly through organic growth and bolt-on acquisitions.

Its share price today is in the low €50s; 10 years ago it was €10. Market cap is €28bn, 50pc higher than three years ago, and for the 22nd consecutive year it has increased its dividend.

On the negative side, the company needs to rebalance a bit, being too reliant on the European and North American markets which still account for 80pc of the business.

But the plans for expansion into Asia and South America should help achieve a rebalancing, even if price cuts in China and EU restrictions on the use of blood substitutes might pose problems.

However, Fresenius has robust earnings and very good defensive qualities.

Nothing in this section should be taken as a recommendation, either explicit or implicit to buy any of the shares mentioned.

Irish Independent