Spire returns to profit as patients bypass NHS waiting lists

Record numbers of people in the UK are seeking out private healthcare as the crisis in the NHS wears on. Private providers, such as Spire (SPI), are obvious beneficiaries of this shift – even with inflationary factors stacked against them.

Self-paying customers made up 28 per cent of the group’s revenue for the last financial year, up from 26 per cent in 2021. Privately insured patients accounted for 45 per cent of revenues, with volumes now tracking 10 per cent above pre-pandemic levels. The remainder of Spire’s turnover comes from carrying out contract work on behalf of the NHS.

Numis analysts said the group is being “selective” with the work it takes on from the health service. Across the company as a whole, revenue per case rose 10 per cent.

Viral outbreaks hit Spire in two different ways – through increased patient cancellations and greater employee absences, which in turn lead to increased expenditure on agency staff. As these risks have subsided, Spire’s return on capital employed has increased by 1.3 percentage points to6.2 per cent.

Rising in-patient volumes helped to boost the group’s adjusted earnings before interest and tax (Ebit) margin to 8.8 per cent from 7.3 per cent last year, and the dividend was restored. Despite this progress, investors can’t seem to shake their lingering doubt – the shares dropped 5 per cent on the release of Spire’s results.

We’re inclined to see this incremental progress as encouraging, however. Buy.

Last IC view: Hold, 240p, 8 September 2022