Spire Healthcare (SPI) is set for a difficult 2017 as a trading update highlights pricing pressure from the cash-strapped NHS that could swipe £7m off sales.
The health service will cut tariffs to third party health services suppliers by 3.9% from 1 April 2017.
It gets worse. Delays in re-developing St Anthony’s hospital, in Sutton, will mean 2016 EBITDA (earnings before interest, tax, depreciation and amortisation) will be virtually flat a about £162m.
No wonder the shares are 10% lower at 310.6p.
St Anthony’s is expecting a lower operating performance with an EBITDA loss of approximately £1.5m in the financial year 2016, marking a significant drop from a £5m profit made in 2015.
Spire has completed six new operating theatres on time, but warns it will not finish re-configuring staffing levels and clinical processes until the second half of this year.
Sally Taylor, analyst at broker Numis, remains relatively upbeat on the company and its shares despite this latest set back. She believes the business can still benefit from the NHS by offering a private alternative and taking on additional public volumes.
Spire is currently on track to open two new hospitals in Manchester and Nottingham and aims to return to mid to high single digit EBITDA growth from 2018 onwards.
One of the bright spots in the downbeat update is a rise in revenue from £885m to £925m in the year to 31 December 2016.
Investment bank Berenberg analyst Tom Jones is more optimistic with a ‘buy’ recommendation.
‘While this is an unwelcome development, Spire has a solid operational track record and we do not see any reason why it will not be able successfully reorganise this site to benefit from the new capacity and restore it to profitability’ he says.
