A lot has been written about the recent struggles of the NHS. With that in mind, could FTSE 250 incumbent Spire Healthcare (LSE: SPI) be a clever buy right now? Let’s explore further!
Private healthcare
Spire is a private healthcare firm and an independent hospital group with 40 private hospitals and eight clinics. It also provides a service to the NHS to help with its backlog too.
Before I dive into the investment case, let’s take a look at the performance of Spire shares. As I write, they’re trading for 228p. Over a 12-month period, they’re down 2%, from 234p at this time last year to current levels.
To buy or not to buy?
Starting with the bull case, the NHS’ struggles are well-documented. An ageing and growing population has placed it under huge pressure and backlogs and waiting lists continue to grow. In addition to this, a lack of skilled workers in a row over pay and working conditions has seen it struggle to recruit. These issues have presented a gap for private providers like Spire to come in and capitalise. Performance, investor sentiment, and rewards could climb in the years to come.
Speaking of performance, Spire’s most recent update, a half-year report released in September for the six months ended 30 June, was positive. Revenue and adjusted operating profit rose by 13.1% and 24.2% compared to the same period last year. Plus, NHS revenue rose by 17.1% as the business also serves NHS customers to help the ailing state-backed healthcare service.
Finally, Spire shares do currently pay a dividend, albeit with a minimal dividend yield of 0.2% on offer. Although dividends are never guaranteed, I’d envisage Spire’s level of returns could grow in line with the business.
Moving to the bearish aspects, a few obvious political plays could hurt Spire. First of all, the government could end all NHS’ outsourcing to private firms, which would hurt Spire.
Another issue is if the government were able to fund the NHS – which would take a huge cash injection at this stage – to reduce waiting lists as well as supply the relevant staff to help do this. This is a long shot, in my opinion, especially in the current economic climate we find ourselves in. If it does happen, there might be less appetite for private healthcare from UK consumers.
My verdict
Taking everything into account, I think Spire shares could be a great stock to buy for my holdings. The next time I have some investable cash, I’ll be looking to snap some up.
I must admit on the surface of things, a price-to-earnings ratio of 42 makes Spire shares look expensive. Perhaps growth is already priced in? However, using the discounted cash flow model, they look undervalued by over 50%.
Either way, given the current malaise the NHS finds itself in, coupled with Spire’s growing presence and positive performance track record, I think there’s plenty of meat on the bones for me to consider this a good buy for long-term growth and returns.
