AE Portfolio Conservative Holding Ramsay Health Care Ltd (ASX: RHC, OTC: RMSYF), which operates private hospitals in Australia, Indonesia, England and France, has overcome recent changes in domestic health care insurance law, including means-testing for state-provided insurance, by continuing its effective brownfield growth strategy and by growing its profile abroad.

Ramsay reported core net profit after tax (NPAT) of AUD290.9 million for fiscal 2013, a 15.1 percent increase over fiscal 2012. Core earnings per share for the year were AUD1.359, up 17.1 percent from AUD1.161 a year ago and slightly ahead of upgraded guidance management provided in February 2013.

Statutory NPAT was up 9.1 percent to AUD266.4 million.

Management declared a final dividend of AUD0.415 per share, up 20.3 percent over the AUD0.345 final dividend for fiscal 2012. The full-year dividend rate was AUD0.705, up 17.5 percent over the prior corresponding period.

Ramsay’s Australian business posted revenue growth of 7 percent and earnings before interest and tax (EBIT) growth of 11.1 percent. Hospital-level EBITDA margin increased 50 basis points, from 17.4 percent to 17.9 percent.

Ramsay completed several major hospital projects and openings during the year, including the AUD47 million expansion of Greenslopes Private Hospital in Brisbane, which included the launch of maternity services at that hospital, as well as the AUD10 million upgrade of surgical services at Beleura Private Hospital on the Mornington Peninsula.

Ramsay opened the new AUD133 million Joondalup Private Hospital on the Joondalup

Health Campus in Perth, the final stage of a AUD393 million development plan at that campus, which has spanned four years and has been jointly funded by the Western Australia government.

Major expansions approved during fiscal 2013 include AUD64 million for the expansion of Hollywood Private in Perth, AUD56 million for the expansion of Warringal Private in Melbourne and AUD34 million for the expansion of Pindara Private on the Gold Coast.

These expansions will open over the next two years.

Ramsay also acquired the 152-bed Peel Health Campus, a public hospital located in Mandurah, in May 2013 from Health Solutions WA. Ramsay is committed to investing in the expansion of both the public and private capacity of this hospital as soon as possible.

The acquisition of Peel, the new contract at Mildura Base Hospital and the opening of the Sunshine Coast University Private Hospital in December 2013 make good on management’s strategic objective of growing through public-private collaborations.

Management continues to explore opportunities as governments seek input from the private sector in the building and operation of public hospitals, such as the recently announced Northern Beaches Hospital in Sydney and the Sunshine Coast University Hospital at Kawana.

Indonesia delivered a strong operating result for the year, growing revenue by 11.5 percent in local currency (Indonesian Rupiah) terms and EBIT by 28 percent. EBITDA margin rose from 16.5 percent to 17.8 percent.

Ramsay’s UK business exceeded expectations during the year, with EBITDAR rising

2.6 percent to GBP93.4 million on a marginal increase in revenue. EBIT was up 6 percent to GBP31.8 million. UK operating margins before rent (EBITDAR) increased by 50 basis points to 25.5 percent.

Ramsay UK hospitals recorded a 6.2 percent rise in NHS admissions. NHS admissions now comprise close to 70 percent of total admissions to Ramsay’s UK facilities.

Ramsay Santé also performed well, with EBITDAR increasing by 4.9 percent to EUR31.4 million. EBIT rose by 5.7 percent to EUR14.2 million. Operating margin for Ramsay Santé increased by 30 basis points to 18 percent.

Ramsay continues to deliver solid revenue growth and margin improvement, coupled with favorable cash conversion and an impressive return on invested capital.

Management also announced the resolution of a pricing disagreement with one of the largest private health insurers in Australia, Medibank Private Ltd, through a multi-year deal that puts to rest fears that Ramsay would be unable to continue to pass on cost inflation. Although no details on the deal have been revealed, the avoidance of a disruption is a big positive.

Management has guided to core NPAT growth of 12 percent to 14 percent for fiscal 2014, suggesting no meaningful negative change in terms.

The upgrade of brownfield acquisitions, along with public-private collaborations as well as a resumption of growth in the UK and in France, will drive growth in coming years.

Management indicated during its conference call to discuss fiscal 2013 results that acquisitions are back on its agenda, noting the recent joint venture with Malaysian conglomerate Sime Darby as a model to expand its footprint in Southeast Asia. Ramsay is positioning itself to capitalize on rising health care spending in the world’s fastest-growing region.

Growing incomes and awareness in key emerging markets that neighbor Australia provide significant opportunities for growth, particularly in the private health sector, which is growing rapidly in emerging-market countries.

Across the developing world, population growth, increasing life expectancy, growing disease burdens and patients’ demand for treatment are driving reliance on private health care companies.

More deals in France are also possible following a pause in the aftermath of the acquisition of a 90 percent stake in Clinique de l’Union, in Toulouse, France, to expand the Ramsay Sante business.

At the same time, the forced divestiture of assets by Ramsay’s UK peers as part of a Competition Commission review of Britain’s state-run National Health Service presents a significant opportunity. Ramsay is already heavily involved in talks to acquire London-based Spire Healthcare Ltd, which is currently owned by private equity firm Cinven Ltd.

The UK review likely won’t result in any deal-making until fiscal 2015.

Operations in France and the UK generated solid margins during the second half of fiscal 2013, indicating a return to health after a long interval caused by the broader European slowdown.

Ramsay has demonstrated its ability to turn revenue improvement into earnings growth, with synergies from any future acquisitions boosting prospects even further.

Australia remains Ramsay’s primary market, and strong domestic demographics support operations at home: A doubling in the proportion of Australians older than 65 is set to underpin earnings for health care companies in the longer term, as beyond that age people become a large consumer of health-care services.

Australians are seeing more doctors and having more tests. If the scope of services continues to increase at the rate of the last decade (74 percent), health care will demand an additional 2 percent of GDP by 2023.

Private hospitals currently treat 43 percent of all hospital patients, of which there were 3.6 million in fiscal 2012. They provide 33 percent of all hospital beds and perform 66 percent of all elective surgery. Of the 664 “Diagnostic Related Groups” undertaken in Australian public hospitals, 660 are performed in private hospitals.

If current rates of growth continue, in 2021 private hospitals will be treating 50 percent of all hospital patients.

An aging population with a growing disease burden is leading to increased demand for health care. At the same time, rising costs across the globe are driving efforts to reform health care systems.

The private sector offers efficient, effective models of health care delivery. Thus an expansion of the traditional private-sector role by way of involvement in public health care delivery is inevitable. This is why Ramsay Health Care’s stock is doing so well.

Ramsay Health Care, yielding 1.9 percent but with a consistently growing dividend rate, is now a buy under USD38 on the Australian Securities Exchange (ASX) using the symbol RHC and on the US over-the-counter (OTC) market using the symbol RMSYF.

Ramsay stock closed at AUD36.65 on the ASX on Sept. 12. Based on the prevailing exchange rate as of this writing, that’s USD33.96 in US dollar terms.

Ramsay Health Care’s fiscal year runs from Jul. 1 to Jun. 30. The company reports full financial and operating results twice a year; it typically posts first-half results in late February, with full fiscal year numbers out in late August.

Interim dividends are usually declared in February, along with financial and operating results for the first half of the fiscal year, with payment typically made a month later, in March. Final dividends are usually declared in August, along with fiscal year results, with payment made in September.

Ramsay’s final dividend in respect of fiscal 2013 of AUD0.415, declared on Aug. 29, 2013, will be paid on Sept. 25, 2013, to shareholders of record on Sept. 9. Shares traded ex-dividend on this declaration as of Sept. 3. The most recent interim dividend of AUD0.29 per share was declared Feb. 26, 2013. It was paid March 27, 2013, to shareholders of record as of March 8. Shares traded ex-dividend on this declaration as of March 4. The fiscal 2013 interim dividend was up 13.7 percent from the interim dividend paid for fiscal 2012.

Management will declare the interim dividend for fiscal 2014 on or about Feb. 25, 2014, when it reports financial and operating results for the first six months of the financial year.

Dividends paid by Ramsay are “qualified” for US tax purposes. Based on the “fiscal cliff” compromise reached in Washington, DC, in early January 2013 dividends will be taxed at Bush-era rates of 5 percent to 15 percent for investors’ first USD450,000 a year of income for couples and USD400,000 for single filers. Above that the maximum tax rate is 20 percent.

The Australian government withholds 5 percent to 15 percent, based on the US-Australia tax treaty on double taxation. The two countries have not taken the step of eliminating withholding from dividends paid in respect of shares held in a US IRA, as have the US and Canada.

Among the analysts who cover the stock three rate it a “buy” according to Bloomberg’s standardization of brokerage house recommendation terminology, while four rate it a “hold.” Three brokerages that cover Ramsay rate the stock a “sell.”

The average 12-month target price between the 11 analysts that provide a figure is AUD33.69, with a high of AUD42 and a low of AUD28.50.  Based on a Sept. 12, 2013, closing price of AUD36.65 on the ASX, the implied one-year total return, including the present annualized dividend rate of AUD0.705, is negative 6.1 percent.

Our view on the stock is more along the lines of the Macquarie analyst that rates the stock “outperform” with a AUD42 12-month target.