UK-based hospital group Spire Healthcare (LSE: SPI) is one of the biggest FTSE gainers today. As I write, its share price is up 25% from yesterday’s close, the highest levels seen since August 2018.
Why has the share price risen?
The sharp upturn follows the proposed acquisition of the company by Australia’s Ramsay Health Care at an offer of 240p per share. To give some perspective, yesterday’s closing price was 193p. In today’s trading, the company’s share price has quickly risen beyond this offer price to 244p.
If I were looking at these numbers today, it would make sense to buy the share at levels lower than the offer price, which could earn some assured returns in the foreseeable future.
What happens now
However, that is only if the deal does go through. It may not. There are already reports that institutional shareholders are disappointed with the offer price. According to a Sky News report, they want to push the price up to 400p.
If the two groups are in negotiations, then it is possible that the Spire Healthcare share price will rise even higher. But that is all just speculation. And at the Motley Fool, we believe in long-term investing.
So, the company is of interest to me only if the deal does not go through and there is no more likelihood of a sell-out. To assess if it is indeed a stock I’d like to buy (or not), I looked at the financials first.
Financials affected, but good outlook
The full-year 2020 was pretty bad for it as elective surgeries were suspended and its contracts with the NHS meant that all its capacity was made available to the service. As a result, its revenues declined by 6.2% from the year before and it ran up an operating loss of £146m.
This is in sharp contrast to its growing revenue in 2019 and an operating profit of £94m. This, however, gives me hope that it can bounce back as the pandemic recedes. This hope is also bolstered by its performance in the second half of 2020, which showed a revenue increase of 5.9% from the year before.
Also, there are signs of healthy demand in 2021. For instance, its private enquiries are higher than in last year and there is a waiting list for private surgeries, among others.
Reduced debt
Notably, Spire Healthcare’s net bank debt actually reduced during the year because of advance payments received on its NHS contracts, measured capital spending, and suspension of its final dividend. This is a particular positive in my view, at a time when companies have actually racked up debt.
My takeaway
All of this matters, however, only if the company’s acquisition does not go through. For now, I think it is a good idea for me to wait and watch how things progress. If it does not, the Spire Healthcare share does merit consideration.
