Discovery share price hit by National Health Insurance

 ·13 Aug 2019

Discovery Ltd extended its slump in Johannesburg trading, dropping the most since December 2015, as some investors fretted over the outlook for the medical insurance administrator under South African plans to shake up the country’s health insurance system.

Discovery fell as much as 11% Monday before paring the decline to 5% as of 1:47 p.m. At its lows for the session, Discovery was heading for its worst two-day plunge on record.

The South African government on Thursday published a bill outlining a national health insurance program it intends to roll out over the next seven years. Private insurers will be able to continue operating as they currently do until the system is fully implemented, after which they will only be able to offer cover for services that complement those available from the state.

“The proposed wording of the bill suggests that health insurers like Discovery will not be able to cover the same illnesses or procedures that the NHI covers,” Olwethu Notshe, a portfolio manager at Sentio Capital in Johannesburg, said in emailed comments. “So this will significantly infringe on the health business of Discovery.”

Monday’s declines pushed a technical indicator of selling momentum on Discovery’s stock to the lowest since 2006, suggesting the recent slump is overdone. The stock, which is trading at the lowest since December 2016, has retreated 31% this year, the worst performance among the five members in an index of South African insurers.

The ruling African National Congress decided in 2007 that the controversial program was necessary to broaden access to medical treatment in a country where 84% of the population of 58.8 million lacks private insurance and relies on a public system with too few doctors and dilapidated facilities. The government plans to introduce a payroll levy and a surcharge on personal income tax to fund the system.

Rand Merchant Investment Holdings Ltd, which holds a 25% stake in Discovery, fell 4.7%, adding to a 4.5% drop on Thursday, when South African stocks last traded. An index of health care companies slipped 3.6%, bringing this year’s decline to 28%.

Read: How much more you would have to be taxed to make NHI ‘work’

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