Hospital group Spire Healthcare Group (LSE: SPI) has led the FTSE laggards in end-of-week business and was last dealing 12.9% lower from Thursday’s close. Today’s weakness puts to an end the recent bull run that has seen the stock advance almost a quarter since the end of June, an advance that saw the firm print record peaks of 401.6p per share just yesterday.
So what’s going on?
Spire’s insipid performance today has been prompted by half-year results that missed forecasts. The health specialists saw underlying revenues advance 5% during January-June, to £449.8m, a result that helped Spire swing to a pre-tax profit of £39.4m from a loss of £1.7m a year earlier.
Added to this, Spire spooked investors by announcing that “because of recent actions taken in response to the NHS Trusts’ estimate of aggregate deficits for 2015/16, we recognise that there may be some near-term weakness in NHS demand over the remainder of this financial year.”
And these problems have already begun to seep into activity at Spire by the looks of things. Total NHS sales advanced 14.1% during the first half, a performance that Investec describes as disappointing — the broker noted that “we expected strong volumes as waiting lists were cleared ahead of the election, but these do not appear to have materialised.”
Spire now expects demand from NHS customers to flatline in the second half of the year, forcing the business to downgrade its full-year revenues and earnings growth forecasts to between 4% and 6%. Previously Spire said that it expected to enjoy “mid to single digit” expansion in 2015.
So what next?
Still, Spire remains bullish over the potential of its its NHS division and commented that “the medium-to-long term trends in this business remain very positive,” adding that demand from PMI and self-pay customers continues to surge higher.
Indeed, the result of financial constraints on NHS waiting lists at present time could push the number of private patients coming through Spire’s doors, the company noted.
Naturally today’s announcement is likely to lead to hefty earnings downgrades across the City. But for many today’s hefty fall could represent a fresh buying opportunity — the company’s expansion scheme remains on track and new hospitals in Manchester and Nottingham are due to open during the first quarter of 2017.
On top of this, Medicare’s purchase of a 29.9% stake back in June should boost its potential in overseas markets, not to mention turbocharge cost reduction across the business. In my opinion Spire’s long-term growth case remains a compelling one.