Investment: healthcare company shares could rise on the stock market – 09/17/2023 – Market

The financial market is confident in the recovery of the healthcare sector on the Stock Exchange. After two years of growth, the accident rate (use of plans) began to decline. In the accumulated period from 2023 until June, the ANS (National Supplementary Health Agency) index fell to 87.1%.

The number is just 0.9 percentage points lower than that of the same period last year, but it already brings hope to companies as it is the first decline in the annual comparison since 2020, when the sector turned to Covid-19.

The relief can be seen in the companies’ operating results. In the second quarter, the loss fell from R$5.4 billion in 2022 to R$4.3 billion in 2023.

Another factor that is beginning to have an effect is the increase in monthly plan fees. Last year, they rose 15.5% for families, and between 16% and 19% for companies, according to Abramge (Brazilian Association of Health Plans).

But, even with rising prices, the sector still has difficulty making ends meet. Analysts point out that the plan adjustments came too late and still do not compensate for the rise in costs due to greater use of services, inflation and greater coverage of procedures determined by the ANS. Thus, hospitals and laboratories await billion-dollar payments and the crisis extends throughout the chain.

During the pandemic, many operators took advantage of the moment of concern about health to offer plans at promotional prices, as operational expenses were lower. But when elective services began to return at the end of 2021, operators held back on increasing plans so as not to lose customers at a delicate time. During this period, Brazilians began to take more care of their health, with more consultations and preventive exams, which caused the accident rate to soar to a record 90.3% in the third quarter of 2022.

With the end of the pandemic, the backlog of payments accumulated, resulting in the loss of customers. Now, if the drop in accident rates is confirmed as a trend, some companies are better positioned to benefit from this recovery in the sector, according to the market.

One of them is Hapvida, which has cheaper health plans. The company says its focus is on increasing profitability, reducing its service network, raising prices and expanding its verticalization, that is, its own network. Furthermore, the merger with NotreDame (owner of 18% of the market) was not finalized, with room to reduce costs. In the first half of this year, it made a profit of R$255 million, a slight drop of 7% compared to that recorded in the same period in 2022.

According to XP, which recommends the purchase of the paper, these changes should generate a net loss of 162 thousand to 124 thousand users, after a drop of 229 thousand customers in the first half of this year, leaving it with 4.2 million. “As a result, the accident rate should begin to decline, gradually stabilizing at 68% in 2026”, write analysts Rafael Barros and Raphael Elage.

At the end of June, Hapvida’s accident rate was 73.9%. The broker sees a potential price of R$5.70 for the stock at the end of 2024, which would be an appreciation of 29% in relation to the current value. In 2021, before the increase in accident rates, the stock reached a record high of R$18.

The company is Itaú’s favorite in the sector. The bank sees potential for the share to appreciate by 59%, reaching R$7 each. “Looking to the future, Hapvida’s efficiency in controlling costs should position the company as the supplier of the most affordable products in the sector”, say analysts Vinicius Figueiredo, Lucca Generali Marquezini and Felipe Amancio.

Qualicorp did not have the same success. Despite promoting adjustments of more than 20% in the membership plans that the broker offers, the results continue to disappoint the market. In the first half of the year, the profit of R$30.4 million was 75.4% below that recorded in the same period of 2022. In June, the change of command, which seeks to recover profit margins, even encouraged the market, but the second quarter numbers put pressure on shares again.

Along with Qualicorp, the Kora hospital network is the one that is losing the most value on the stock market. The company went from a profit of R$76.7 million in the first half of 2022 to a loss of R$5.8 million in the same period this year. In addition to the delay in transfers from operators, the company suffers from a net debt of R$2.5 billion, which is equivalent to 5.7 times its Ebitda (earnings before interest, taxes, depreciation and amortization). And Selic at 13.25% doesn’t help. For now, the market remains neutral in relation to Qualicorp and Kora.

The market leader didn’t escape either, but managed to recover faster. With 10% of private beds, Rede D’Or presented results that please the market this year by increasing the average cost of users. And, for now, the acquisition of SulAmérica —the country’s fourth largest healthcare operator— has had positive effects. The operator managed to increase revenue, raising prices and reducing claims. In the first half of this year, the group made a profit of R$739 million, an annual increase of 26%. Santander recommends the share, with a target price of R$40, a potential appreciation of 39%.

Another that benefits from acquisitions is MaterDei. It began to reap the rewards from purchases of hospitals in Bahia, Goiás and Minas Gerais made in 2022. With the expansion of revenue, the company managed to maintain net profit for the first half of the year in line with last year (R$ 113.5 million ). XP sees room for operational growth and recommends purchasing the stock, with a target price of R$9.9, which would be a modest appreciation of 6% in relation to the current value. “It is worth noting that only 63% of the beds are currently in operation, which means that there is still plenty of room for the company to continue growing without the need for significant investments”, say the brokerage’s analysts.

The end of Covid also impacted the cash flow of diagnostic testing laboratory networks. While the Fleury group managed to recover, Dasa, which includes hospitals, is making losses.

In the second quarter of this year, Fleury had record revenue of R$1.8 billion, with the consolidation of results from the Pardini Group, acquired last year. In the first half of this year, the group’s profit rose 24%, to R$221.5 million.

Dasa already accumulates a loss of R$376 million until June, compared to a profit of R$20 million in the same period in 2022. The main villain is the debt of R$8 billion, equivalent to the company’s 3.7 Ebitdas. Dasa’s profitability continues to fall short of expectations, say analysts Caio Moscardini, Karoline Silva Correia and Guilherme Gripp, from Santander.

In addition to all these difficulties that the sector faces, there is one more potential risk: the health plan PL, which is being processed in Congress. The project aims to limit the readjustment of collective plans according to the accident rate of all of them. Today, the ANS sets a limit only for individual and family plans.

Dental plans, in turn, are practically shielded, experts say. As their cost is low, companies continue to offer them to their employees. There are 50 million Brazilians with health insurance and 31.5 million of them have dental coverage.

Odontoprev alone is responsible for 8 million beneficiaries. In the second quarter, it reversed the loss of customers from the beginning of the year, with a final addition of 156 thousand customers. In the first half of the year, it made a profit of R$287 million, 10% more than the previous year. Santander recommends buying the share, with a target price of R$15.40, equivalent to an increase of 43% for the stock.