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The perfect small stock to play the coming R150 billion health sector growth

by , 18 February 2021
The perfect small stock to play the coming R150 billion health sector growth
There have been many changes that the coronavirus pandemic has forced on us. And the healthcare sector perhaps has seen some of the most profound changes.

Whether we're managing a chronic condition, like high blood pressure, or an acute illness like strep throat, the market demand for these healthcare needs hasn't decreased a bit. But COVID-19 has made getting in to see a doctor at their offices, and especially a specialist at a hospital a lot more complicated.

 
That means telemedicine, and the broader field of digital healthcare, is the name of the game right now. This is clear considering the recent $18.5 billion merger between Livongo’s healthcare platform with telemedicine company Teladoc.
 
But here’s the thing… It’s not just in the US and abroad that this is a huge trend… The healthcare sector in South Africa is expected to grow by R150 billion between now and 2027, and these kinds of value-added services are on the forefront of the growth that’s taking place.
 
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The R3 billion healthcare company taking on a R100 billion behemoth
 
AfroCentric (JSE: ACT) is a little-known JSE based healthcare company. While it has a market cap of only R3 billion compared to Discovery’s R100 billion, it administers MORE lives within its medical aid schemes than Discovery does (3.8 million compared to 3.5 million)!
 
In fact, it just signed a five-year contract with the Government Employees Medical Scheme (GEMS) to manage it for R630 million a year!
 
GEMS currently has 750,000 principal members.
 
Afrocentric’s other schemes include Fedhealth, Bonitas and Hosmed.
 
Thanks to Covid-19 this company is growing
  
In its latest results AfroCentric grew profit after tax by 19.1% to R458 million for the year ending June 2020.
 
The company says that most of its growth is thanks to its health care retail division which includes Pharmacy Direct and medicine wholesaler Curasana. It delivers medicines to client’s homes. Thanks to its relationships with the medical aid schemes it manages, it can contract in these services.
 
Pharmacy Direct was acquired by AfroCentric in 2016 – but it’s taken the company some time to scale up the business to something that has now gained critical mass.
 
Pharmacy Direct, a member of the AfroCentric Group, is a nationwide courier pharmacy who delivers prescribed chronic medication to a variety of patients – from private individuals, to medical scheme members and beneficiaries of public healthcare sector programmes. And as with any business is involved in logistics – scale brings higher profits.
 
Pharmacy Direct has now reached critical mass
 
 
Looking at this chart you’ll see how Pharmacy Direct has basically QUADRUPLED its business size since 2016 – and clearly it’s now making AfroCentric great returns…
 
Considering many ‘at risk’ individuals don’t want to go out and stand in rows at pharmacies – it is evident why this service is so popular – and a fast grower for AfroCentric. In fact – in its latest results the company’s healthcare products and delivery services experienced a 96.4% increase in operating profit!
 
At the same time – due to the economic hardships many people are experiencing they are ‘downtrading’ on their medical schemes. So instead of cutting off their medical scheme membership completely, they are moving to a more affordable service provider or plan. This is a problem Discovery is already experiencing…
 
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AfroCentric says it is ready to assist with the Covid vaccine rollout
 
According to an ENCA report: “The company says it will utilise its network of 3,000 experienced and registered nurses, who will travel anywhere in the country and have the ability to provide over 150,000 vaccinations per day, in the right conditions, once the vaccines become available.
 
The group aims to assist the government with the first two phases of vaccinating essential workers and high-risk people.”
 
Isn’t NHI a risk for Afrocentric?
 
I’m sure you’ve wondered about the viability of a medical scheme once NHI is implemented…
 
So firstly, the Minister of Health confirmed that private medical aids will continue to exist under NHI. While not even government is sure how NHI will work yet, it is likely that private/public partnerships will be used – and NHI still needs to be administered. So, a company like AfroCentric’s Medscheme could be contracted to do that. The company already manages government employees’ medical schemes, and has shown it can cooperate with the health department.
 
Most important of all – the stock is really attractive right now.
 
It trades at 458c, but paid two 17c dividends in its latest financial year. And with headline earnings per share at 53.42c – it’s on a PE of less than 10, while the JSE average is more than 25! 
 
  
Here’s to unleashing real value
 
Francois Joubert
Editor, Red Hot Penny Shares


The perfect small stock to play the coming R150 billion health sector growth
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