Spire gains from private insurance demand

Private hospital group Spire Healthcare (SPI) saw overall admissions rise in the first half of its financial year – a trend it attributes to high levels of pent-up healthcare demand after the pandemic. 

Revenue from the private medical insurance (PMI) segment grew by nearly 16 per cent year-on-year to £307mn, reflecting UK-wide growth in the insurance market. Meanwhile, income from self-paying patients increased to just over £178mn, a more modest 3 per cent uptick on the first half of 2022. 

Spire also does some work for the NHS on a partnership basis (though it ultimately aims to derive 70-80 per cent of its revenue from private patients). Revenue from the health service grew by 17 per cent to £171mn in the half, but self-paying and privately-insured customers still contributed 72 per cent of total turnover. About half of Spire’s NHS business is now in the field of orthopaedics, with the service looking to reduce long waiting times. 

As is the case in so many industries, rising input costs restrained margin improvements, although reported profit growth seems to have placated investors. Shares rose 1 per cent on the morning of the results announcement. 

London’s only other listed private healthcare group, Mediclinic, was taken private earlier this year, meaning Spire has few easy comparators. Shares are currently trading on 25 times consensus forward earnings, which looks pricey in isolation. However, Liberum analysts said that they “continue to see takeover speculation as part of the investment case".

It has been a busy year for take-private deals in the UK healthcare space, and we fancy our chances. Buy.

Last IC view: Buy, 223p, 2 March 2023