Netcare FY22 – Going slowly but not standing still

Netcare’s (NTC) steady improvement in earnings and cash flow generation from its operations in FY22 is testament to the profitable and cash generative businesses that is Southern Africa hospitals, which we flagged in SA hospitals initiation: Southern Africa operations save the day. The group’s main contributor to revenue, Hospitals and pharmacy operations, is on a slow but steady recovery of paid patient days (PPDs). NTC’s participation in hospital networks provides access to patients, but case management initiatives are limiting PPDs growth while low tariffs are restricting revenue per PPDs growth.

Akeso clinics’ robust increase in patient days is powering the recovery of total PPDs and boosting non-acute services’ revenue growth. However, while Primary Care has been restructured into an efficient division, there is little evidence that it has been set up for significant revenue uplift, in our view. When we asked about its strategic direction, management commented: “This division remains well placed to deliver quality cost-effective care to the insured and uninsured population”.

We expect a gradual improvement in occupancy rates and PPDs as non-Covid patient activity ramps us. However, this will only result in moderate revenue growth and will require management to be clinical on cost control measures to gain good margin expansion across the group. Management is replacing non-productive clinical units with productive clinical units such as mental health services. Akeso mental clinics are boosting revenue growth for Non-acute services and are margin accretive.