24min read
PREVIOUS ARTICLE Australia has nowhere to grow NEXT ARTICLE Battening Down the Hatches to the China Storm

At the turn of the century some investors around the world were literally drooling over the prospect of cashing in with shares of companies that could ride the rising tide of opportunity stemming from the waves of Baby Boomer retirement.  Although there are still compelling investing opportunities available, the GFC and its seemingly never-ending aftermath have clouded the picture.

The earlier question for our analysis was speculating on what an increasing number of retirees with time on their hands and money in their pockets would do.  Although retiring Boomers will still have time on their hands, the GFC has left many with less money in their pockets to spend.

Before the crisis, investor capital from major players was flowing into the retirement village sector.  While there is ample evidence Boomers are beginning to exchange their current living arrangements for retirement village life, that migration may be slower than anticipated. 

Similarly, the tourism and leisure sector stands to benefit handsomely from Boomers looking to spend some of their time in resort hotels and casinos.  Despite the prospect of something less than an impending flood of Boomers floating into resorts and casinos, there are companies in this sector that over the long haul will still benefit.

First, as you know, the Boomer phenomenon is not unique to Australia.  Industrialized countries around the world are facing the same rising tide we are.  Tourism and leisure shares with an international presence should do well over time. 

The second thing to keep in mind is that the retirement tsunami will come in successive waves.  This is not something that will crest in a year or even five years.  The tide will continue to rise for several decades and unless you are one who is betting on a global economic Armageddon, the opportunities will get better over time.

The sector that should be most resistant to the possibility of dwindling Boomer financial resources is healthcare.  You can delay a visit to the tables at a luxurious casino or a vacation cruise, but a principal concern of all Boomers is staying healthy as they age.  In short, there are opportunities in tourism and leisure, but healthcare shares carry less risk.

We are going to look at some interesting shares in both sectors, beginning with healthcare.  Here are five healthcare shares that bear watching:

Company

Code

Market Cap

Share Price

52 Wk Hi

52 Wk Lo

Dividend Yield

Return on Equity

Sonic Health Care

SHL

$5,003M

$12.83

$13.14

$10.66

4.7%

11.7%

Ramsey Health Care

RHC

$4,280M

$20.91

$21.12

$16

2.6%

16.1%

Primary Health Care

PRY

$1,435

$2.86

$3.58

$2.56

3.6%

4.2%

Blackmores Ltd

BKL

$26.50

$30.49

$24.05

$24.05

4.9%

34.5%

1300 Smiles

ONT

$121M

$5.12

$5.50

$3.0

3.0%

32.8%

 

Sonic Healthcare Limited (SHL) has a business model ideally suited to benefit from increased healthcare spending.  They serve not the end users of healthcare services, but the providers.  They provide medical diagnostic services to medical practitioners, hospitals, and community health centres through their pathology and radiology business segments.  You can think of them as a laboratory for doctors and medical centres. They are international in scope with a presence in Australia, New Zealand, the United Kingdom, the United States, Switzerland, and Belgium.  They also have a business segment that provides administrative services to medical center operations.

In theory, SHL should benefit from an increasing number of Boomers over the coming decades needing clinical pathology testing and radiologic medical imaging testing and on and on.  In practice, these benefits will accrue to solidly run companies.  In published broker recommendations in the first half of 2012, six of Australia’s major analyst firms rate SHL as a BUY, OVERWEIGTH, or OUTPERFORM.

Their share price suffered in 2011 but has recovered in 2012 and is now outperforming the ASX XJO.

Ramsay Health Care Limited (RHC) is both owner and operator of private hospitals in Australia, Indonesia, France and the United Kingdom, with a total of 177 private healthcare facilities.  These include hospitals, day surgery centers, psychiatric care facilities, and rehabilitation centers.  It is no secret that the Boomers are going to put increasing pressure on public health care systems.  .RHC is expanding into the eldercare market through their subsidiary Ramsay Aged Care Properties.

The government already offers rebates to Australians who take out private health insurance and those rebates rise with age.  In a healthcare market that could become overwhelmed by Boomers, it seems to be nothing more than common sense to anticipate growth in private health providers like Ramsay.  Yet analyst recommendations in early 2012 are decidedly bearish, mostly due to perceived over valuation.  JP Morgan is the only analyst firm with an OVERWEIGHT rating on RHC and 5 others have HOLD or NEUTRAL ratings.  On 29 February 2012 Citi maintained its SELL rating, citing concerns over government control of private health insurance premium increases.  On 12 March 2012 UBS chimed in to maintain its SELL rating citing valuation concerns.  And here is how the share price of RHC has performed over the last year:

Although actual share market participants appear to be ignoring the analysts’ downbeat view, the concern analysts raise about government involvement in the healthcare sector is a real concern.  Sonic Healthcare could suffer if pricing in the pathology and radiology services they provide are constrained too deeply.  However, with both companies the potential volume increase due to Boomer demand for healthcare should offset pricing concerns.

Primary Health Care Limited (PRY) combines elements of the business models of both Sonic Health Care and Ramsay Health Care.  They have four revenue generating streams – Medical Centres, Pathology, Diagnostic Imaging, and Healthcare Technology (clinical and practice management software for general practitioners and specialists.)

What most makes this company unique are its 87 Primary Medical Centres throughout Australia.  These facilities offer a “one-stop shopping” experience for most medical services.  Centres are open 365 days a year from 7am to 10pm.  Patients do not need to make an appointment to see a general practioner or a specialist.  Radiology and pathology services, pharmacies, dental care, eye care, and even same day surgeries are all there.  They handle Medicare billing as well as non-Medicare services. 

Despite all this, Primary has had a rough road in terms of recent share price and analyst opinion is mixed.  Three major analysts currently have BUY ratings on the company with one UNDERPERFORM and three NEUTRALS, with one being a downgrade.  Major concerns are margin pressure due to pricing restrictions.  However, if you believe in insider buying as a sign of strength, this battered and beaten stock rose about 3% in one day in May 2012 when the company founder and CEO bought 50,000 shares.  ASX announcements show other company directors have been buying recently as well.

The following one year share price movement chart is grim, but it is hard to imagine how an increasing number of seniors will not find the company’s Primary Medical Centres an attractive place to go to meet their healthcare needs.  Here is the chart:

Blackmores Limited (BKL) manufactures and distributes health products free of government healthcare pricing concerns – vitamins and herbal and mineral nutritional and health supplements.  They operate in Australia, New Zealand, and parts of Asia.  Innovation is a company strength, as evidenced by the introduction of 68 new products in 2011 alone.  The company assists retail distributors with extensive training and education.  In line with their positioning as a holistic health company, they operate a Naturopathic advisory service and website.  A few years back they added a new revenue stream with the acquisition of an animal health company.  They now sell products through more than 800 veterinary clinics and 300 pet stores in Australia and have begun exporting products as well.

This small company has only three major analyst firms providing coverage, with one OVEWEIGHT and two HOLDS.  Despite declining consumer confidence, the company has performed well for its investors, as evidenced by its respectable 4.9% dividend and outstanding ROE of 34.5%.  Share price, however, reflects not fundamental performance, but concern over declines in the overall retail sector.  Here is their one year share price performance chart:

1300SMILES Limited (ONT) operates only in Australia, and at present, only in Queensland and New South Wales.  They offer full service dental facilities and management services to private dental practioners.  There is nothing glamorous about dental care, except everyone needs it and as we age, dental care becomes even more important.  This small, mundane company, however, has rewarded its investors very well over the last few years.  The one year ROE of 32.8% is outstanding.  Total shareholder return over 3 years has been 30.5% and 15.1% over five years.

Their one year share price chart reflects that:

Now on to the tourism and leisure sector, which was hit hard by the GFC.  To add to the existing miseries for Australian operators, the strength of our dollar in the Post-GFC world has led many to take advantage and travel abroad to roll the dice and play the tables and bask in the sun instead of doing so at home.  Here are four tourism and leisure stocks that could benefit from monied Boomers:

Company

Code

Market Cap

Share Price

52 Wk Hi

52 Wk Lo

Dividend Yield

ROE

Tabcorp Holdings

TAH

$2,705

$3.02

$3.72

$2.46

11.2%

44.2%

Skycity Entertainment

SKC

$1,604

$2.78

$3.16

$2.40

5.3%

16.9%

Aristocrat Leisure

ALL

$1.602

$2.92

$3.25

$1.88

2.4%

26%

Ocean Capital

OCE

$14.5

$0.18

$0.19

$0.14

0.0%

-15.9%

 

Tabcorp Holdings (TAH) is in the gaming, entertainment, and hospitality business here in Australia.  The company’s preferred self description is as provider of diversified entertainment opportunities.  They have four major business segments (Wagering, Gaming, Keno, and Media and International) with strong brand identification with TAB, Tabaret, Keno, Luxbet, TAB Sportsbet, Tabcorp Gaming Solutions, Sky Racing and Sky Sports Radio.  They split off their casino ownership to Echo Entertainment (EGP) to focus on the gaming offerings within casinos.  The company’s rollout of the highly successful Trackside animated video racing game plus their media expansion with Sky Racing and Sky Sports Radio bode well for their future.

The shedding of the casino operation is less than a year old and the lofty dividend of 11.2% and 44.2% ROE reflect casino revenues.  Analysts at RBS Australia and elsewhere seem to feel the transition will be several years in the making, and the share price has struggled.