Investec downgrades Spire Healthcare on NHS cuts

Spire Healthcare slumped after Investec cut its stance on the stock to ‘sell’ from ‘hold’ and slashed the price target to 234p from 375p, saying near-term risks are not fully reflected in the price.

The brokerage said Spire is facing an uncertain future in the short-term, with NHS volumes decelerating and Monitor – the sector regulator for health services in England – proposing to cut orthopedic prices.

It noted that recent actions by Monitor to reduce NHS budget deficits have caused significant declines in the volume of work outsourced to the private sector through spot contracts, adding that Spire anticipates this trend to continue, offset in part by growth in ‘Choose and Book’.

“Whilst we expect the lost NHS patients to return to the private sector eventually, through private pay, there is a lag effect and we expect private medical insurance growth of only 1-3% per annum to full year 2018,” it said.

Investec expects the subsequent increase in proportion of group sales from NHS, coupled with new hospital openings, to drive EBITDA margin declines until FY18.

At 1450 GMT, Spire shares were down 3.8% to 4.45p.