Business World

Friday 18 October 2019

Share Watch: German healthcare giant may prove real tonic in a downturn


In good health: Fresenius is financially strong despite shares drop. Photo: Alexander Pohl/NurPhoto via Getty Images
In good health: Fresenius is financially strong despite shares drop. Photo: Alexander Pohl/NurPhoto via Getty Images

John Lynch

In simpler times many believed health was a blessing that money cannot buy.

Those who believed in that simple message didn't recognise the difference between health and the treatment of ill health, which is always available if you can find the cash to pay the large bills involved.

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The booming healthcare sector over the past half century once even claimed expensive private medicine was recession-proof. That may not be the case as recent experience in the Middle East (where the money for private medicine was at its most lavish) has shown.

This morning we are looking at a private hospital operator, German healthcare company Fresenius, which has a highly impressive profit record but whose shares have lost the confidence of the market because some analysts seem to have reckoned the sector may not be the winner it once was.

Fresenius is based in Bad Homburg and even though it is an unfamiliar name in Ireland is nevertheless a significant global group. It is a world leader for chronic kidney problems as well as owning the largest hospital business in Europe, and leads the continent's nutrition and infusion market. It is also a significant employer with more than 273,000 employees in more than 100 countries (including Ireland) and has a market value of €27bn.

The group was founded more than 100 years ago by Dr Eduard Fresenius when he set up a small manufacturing business producing injection solutions and nasal ointments.

It became part of the German economic miracle of the 1950s and by 1986 was floated on the Frankfurt Stock Exchange. The group has seen considerable growth with revenues increasing almost five-fold and boasts a 10-fold net income rise.

However, it is the development of the group over the last five years that warrants attention, with revenues rising 40pc to €33bn and net income has doubled to €2bn. These results have been driven by three of its four independent arms: medical care, therapy/clinical nutrition and hospitals.

Medical care is the largest in terms of revenue/profits. This business focuses on providing products and services for chronic kidney problems.

Today it has a network of 3,900 dialysis clinics (2,300 in the US) treating more than 330,000 patients around the globe. Revenues in the last five years have risen 50pc, generating net income of €1.4bn. It has a strong market position as every second dialysis machine used around the world is supplied by Fresenius.

The group operates 120 hospitals and a considerable number of out-patient centres. It generates revenues of €9bn - a threefold increase since 2014 with an impressive net income jump of 2.5 times.

The company treats up to 20 million patients each year and, interestingly, more than 70,000 babies are born annually in its hospitals.

Fresenius's other significant business specialises in supplying essential drugs, medical devices and clinical nutrition for clinically ill patients. It generates sales of €6.5bn with net income of €750m.

Results last year were strong with sales and net income increasing by 6pc, the 15th consecutive record year. However, investors are relieved the company won a landmark case in Delaware, Colorado allowing it to cancel a $4.3bn (€3.85bn) takeover of rival Akorn following a rapid downturn in the US business.

As mentioned earlier, Fresenius shares fell right out of favour, falling 30pc since its yearly high of €71 a share. Today its shares trade at €48 with a price earnings multiple of 13 and earnings per share of €3.70.

If you have confidence in the US and European healthcare markets, Fresenius is worth considering as both markets account for 80pc of its revenues/profits.

The company is financially strong and if a recession is a worry the shares have good defensive qualities. It could be worth climbing aboard at this level.

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

Irish Independent

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