I reckon this cash-generating FTSE 250 company could be on the cusp of a turnaround

Here’s why I’m tempted to pick up a few of this firm’s shares with a holding period of at least five years in mind.

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After a shaky start to its life as a company listed on the London stock exchange over the past few years, I reckon Mediclinic International (LSE: MDC) could be on the cusp of turning itself around. The inherent defensive and cash-generating characteristics of the sector could lead to the firm making an enduring and profitable investment for shareholders in the years to come.

Steady trading

Today’s half-year results report from the private healthcare provider is tolerable. Revenue rose 9% compared to the equivalent period the prior year and adjusted earnings per share came in flat. The directors held the interim dividend flat too, suggesting a cautious outlook.

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Not a disaster then, but nothing to get the pulse raising either. As compensation, we investors are faced with an undemanding valuation. With the share price close to 382p, the forward-looking earnings multiple for the trading year to March 2021 is just over 13, and the anticipated dividend yield is just over 2%. City analysts following the firm expect a rapid rebuilding of earnings during this year and next, which should cover the dividend payment around 3.5 times.

Chief executive Dr Ronnie van der Merwe said in the report the performance in the period was “solid” with all three divisions growing revenue, EBITDA and patient volumes. The company earned around 52% of its operating profit from operations in Southern Africa, 37% from Switzerland, and 11% from the Middle East. Van der Merwe is “pleased” with progress adapting the business to healthcare trends and changing regulatory environments, “especially at Hirslanden in Switzerland.

A plan for growth

Part of the firm’s plan for growth involves broadening the scope of operations to embrace areas beyond the core acute care business. Growth initiatives and collaborations include striking out into things such as daycare clinics, primary care facilities, sub-acute hospitals, radiology, precision medicine, IVF and digital healthcare solutions.   

There are some robust tailwinds in the sector and Mediclinic reckons the global demand for quality healthcare services “remains unwavering.”  To illustrate, the report mentions factors such as an ageing population, the growing disease burden and digitalisation of healthcare. All those things are “creating further opportunities for expansion and evolution across the healthcare continuum.” 

I’m pretty sold on the idea of investing in the sector and I like the fact that Mediclinic has had the stuffing knocked out of it. Indeed, the shares were trading higher than 1,100p in August 2016, so today’s price represents a more than 65% decline. But reading the tea leaves (and the share-price chart), I reckon the stock has been consolidating and creeping up for most of 2019, which I find to be encouraging.

It seems to me operations have stabilised and it could be a good time to revisit the shares. I’m tempted to pick up a few, with a holding period of at least five years in mind.

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Kevin Godbold has no position in any share mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

Should you invest the value of your investment may rise or fall and your Capital is at Risk. Before investing your individual circumstances should be considered, so you should consider taking independent financial advice.

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