Spire Healthcare targets too 'ambitious' for Jefferies, backs Mediclinic

Spire Healthcare's long-term private and NHS healthcare targets look rather too ambitious for Jefferies, which downgraded the UK-focused stock and highlighted the attractions of South African former suitor Mediclinic.

Spire, one of the UK’s largest healthcare providers, told analysts in April that it was aiming for more than £200m in earnings before interest, tax, depreciation and amortisation by 2020, with 80% of sales coming from private patients.

But in a note published Thursday, Jefferies argued that Spire’s focus on self-paying customers was "unlikely to deliver" because of the provider’s weak presence in London, which accounts for around 40% of the market. Budget cuts at the NHS and Brexit also remained significant risks.

“Spire's 2022 targets already look ambitious. Six months later, it is increasingly clear to us that the targets are challenging and timelines are likely to slip,” analysts noted, with its estimate for 2022 EBITDA now 20% below guidance.

"We take a more cautious view on each of the three payer segments at Spire. We also see a risk of near-term downgrades, giving the ongoing challenging environment at the NHS and our view of targeted cost savings being unable to compensate rising wage costs, shortages of skilled staff and escalating rents.”

Last month, Spire said full-year profits would miss expectations after it posted a 20.6% decline in interim underlying earnings, to £66.1m. Spire, which has 39 hospitals and 11 clinics, blamed it on a fall in admissions from the NHS and fewer-than-expected private patients.

Jefferies has an 'underperform' recommendation on the FTSE 250 stock with a price target of 115p. Shares in Spire were off 6% at 1pm, at 137.9p on Thursday.

However, Jefferies reiterated its ‘buy’ recommendation on rival healthcare provider Mediclinic, which owns 29% of Spire, and increased its price target to 564p.

Mediclinic’s share price “continues to bleed despite a number of positive catalysts” said Jefferies, adding: “Our analysis reveals the market is overly pessimistic on Switzerland, where [its] expanded Geneva presence boosts margins while the new Swiss chief executive should help deliver on 2020 targets. With Dubai Parkview hospital now opened, Middle East is poised for growth.”

Mediclinic, which is based in South Africa and listed in London, walked away from a potential £1.3bn takeover of Spire last year after the two sides failed to reach an agreement.