FTSE 350: Costs bite into UK healthcare

That is problematic for private hospital group Spire (SPI) which relies on elective operations such as hip and knee replacements. Three profit warnings have contributed to a 59 percent share price fall in the last year, which in turn has hurt Mediclinic (MDC). The South Africa-based hospital operator was forced to take a £164m impairment on the falling value of its 30 per cent stake in Spire.

Shifting demand has also added to the competitive pressures of the medical equipment industry. New product innovation is crucial if companies want to maintain demand from healthcare providers, which is why Smith & Nephew (SN.) has prioritised investment at the cost of profit growth in the last few years. That seems a sensible strategy when compared with its UK-listed peer ConvaTec (CTEC), which faces falling demand owing to a lack of new product innovation.

And even where numbers are good and demand is rising, investors seem wary of the UK’s healthcare companies. That’s likely to be partly due to their historically high ratings, which looks particularly generous in the current climate – the share prices of both NMC Health (NMC) and UDG Healthcare (UDG) slumped in response to their recent financial results, despite expectation-beating numbers.

There is also the overriding concern that the world is turning increasingly towards ‘value based medicine’. Cutting costs wherever possible has become a priority for hospitals, which is putting pressure on the companies that make equipment and devices – a trend that looks unlikely to let up in 2019.