Credit Suisse cuts rating on Spire Healthcare

The bank has cut its rating to ‘underperform’ from ‘neutral’, and reduced its target price to 85p from 170p.

Spire is one of the UK’s largest healthcare companies, providing services and facilities to NHS, self-pay and insured patients. It is trying to increase sales to private patients but some analysts are concerned that targets are too ambitious given the scope of its property portfolio.

Credit Suisse said it had cut its forecast of private pay revenue growth from 4% to 3% per annum, while also “continuing to expect NHS revenues to fall by 2.5% in 2019 before stabilising in 2020”.

It added: “We expect UK hospital market conditions to worsen in 2019, and temper Spire’s nascent progress in private pay growth. Further, soft NHS revenues should impair fixed cost absorption.

“The structurally lower profitability prompts us to cut the market value of Spire’s property from £1bn to £500m.”

Credit Suisse has not ruled out a takeover “at a substantial premium, the probability of which we consider tightly connected to Spire’s ability to improve its operating returns”. It also said that “raised political sensitivities about waiting lists could prompt a more rapid recovery in NHS revenues than forecast”.

But the bank also warned that it expected “staff resourcing and costs to become more burdensome post-Brexit”.