How much you would have if you invested R1,000 in Discovery, Netcare and other health stocks – after the NHI bombshell

 ·19 May 2024

Discovery was particularly affected by the NHI’s singing, while other South African medical insurers with a more diverse portfolio seemed to stem investor jitters.

Additionally, although the signing of the controversial bill impacted South Africa’s JSE-listed hospitals, the lack of growth in medical aid is a growing concern.

On Monday (13 May), shares in Discovery and other South African medical insurers slumped after President Cyril Ramaphosa said he’d sign into law the National Healthcare Insurance (NHI) that businesses oppose.

The president has vowed on the campaign trail to use the legislation to end “healthcare apartheid.”

Following this, Discovery dropped as much as 8%, the most since March, while peers, including Momentum Metropolitan, Sanlam and Old Mutual, also traded lower.

Discovery has dropped over 18% this year, compared with a 2.7% increase in the FTSE/JSE Africa All Share Index.

However, despite Discovery taking a hit, other insurers who provide medical insurance, such as Momentum and Sanlam, were less affected—still posing a year-to-date (YTD) gain of 2.2% and 1.58%, respectively.

According to Bloomberg data, Discovery derives about 34% of its earnings from its South African health business, while the others have more diversified portfolios.

Avior Capital Markets analyst Adrienne Damant said that under the NHI Bill, one of Discovery’s key divisions will no longer be allowed to operate.

“Ultimately, it’s an essential part of Discovery’s business that regulation is outlawing,” she said.

South Africa’s FTSE/JSE Health Care Providers Index was among the biggest decliners on the Johannesburg stock exchange Tuesday, with hospital operator Netcare leading a retreat in the sector, falling 5.7%, the most since April 2023.

Interestingly, although shares in Life Healthcare dropped 2% on the bill’s signing, they posted a massive loss of over 40% YTD.

This drop resulted from market reactions. Analysts’ concern was that margins came under strain even as occupancies increased.

Director and portfolio manager at Sentio Capital Imtiaz Suliman said the update was mixed. Decent revenue growth was driven by Life Molecular Imaging, while the SA result reflected a tough environment.

“Medical aid membership hasn’t grown in SA over the last number of years, which is a headwind for companies like Life Healthcare,” he said, citing the decline in core profit as the negative in the update.

The president signed the NHI into law at a ceremony on Wednesday (15 May).

Despite this major legislation change, Discovery CEO Adrian Gore sent a notice to all Discovery medical aid members clarifying what the signing of the National Health Insurance (NHI) into law means for the group.

Gore said that medical aid members need not panic, noting that the new laws will not affect medical scheme cover and benefits “for a long time to come.”

The table below compares the performance of the shares of South Africa’s most prominent healthcare insurers and private hospitals and what the value of a R1,000 investment in each company at the start of the year would be today (as of 17 May 2024).

CompanyShare price change in YTD 2024Today’s value of R1,000 investment invested at the start of 2024
Momentum Metropolitan+2.20%R1 022.00
Sanlam+1.58%R1 015.80
Old Mutual-10.08%R899.20
Life Healthcare-40.31% R596.90

Read: Discovery clarifies what the new NHI means for medical aid members in South Africa

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