How to invest in the NHS spruce-up
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Senior Writer
Eoin Gleeson Jul 04, 2008
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Lord Darzi's plan to rate hospitals on infection control and re-admission (see: Can ritzy reforms save the NHS?) will have one immediate side effect for British patients – it'll give them a thumping headache. From Glasgow's Royal Alexandra Hospital, where five new-born babies were isolated last week to prevent an MRSA outbreak, to Southend hospital in Essex, where 44 patients died last year from bugs picked up in the hospital, a map of infection outbreaks at British hospitals will look like a minefield to patients looking for the best care.
But the good news is that it should also encourage ailing hospitals to clean up their act, and that should boost infection control groups like Synergy Healthcare (LSE:SYR). Synergy is the UK's foremost provider of sterilisation services – a £450m business built on encouraging the NHS to outsource the sterilising and decontaminating of surgical equipment, delivering a error rate lower than 0.25% in the process.
In recent years, the company has grown beyond the NHS (which now accounts for a third of its business) into Belgium, Holland and China. Morgan Stanley analysts forsee earnings growth of 20% or more in the year ahead. The company trades on a forward p/e of 12.1 for 2010. Bioquell (LSE:BQE) has also been cleaning out NHS hospitals for a number of years. The group specialises in decontamination, using hydrogen peroxide to clean out wards. The system is almost 100% successful and has been rewarded with Category One status, making it a preferred method of decontamination in hospitals in the UK and the US. The company is growing strongly and is valued on a forward pe ratio of 14, and offers a 3.9% dividend yield.
Infection control group Tristel (LSE:TSTL) could also benefit from the drive to clean up the NHS. The group specialises in sterilising endoscopes and has a dominant position in the market, supplying 60% of all UK hospitals. Its shares trade on a forward p/e of 12.3, but with a price-to-earnings-growth ratio of 0.2, any earnings growth comes cheaply.
Hospital bugs aren't the only threat to patients, of course. Every year thousands of people suffer debilitating side-effects from taking prescription drugs and over-the-counter medicines. In 2006, there were 973 reported deaths from suspected adverse reactions, costing the NHS around £3.8bn.
One way to cut down on this is to prevent mistakes being made when administering drugs. This is where Ascribe (LSE:ASP) comes in. Ascribe installs IT systems which give pharmacists and doctors back-up information, ensuring that the correct medicines are dispensed, in the right doses and to the right patients. Ascribe has sold at least one of its 19 software products to most of the NHS trusts. The company is valued on a forward p/e of 9.2.
Another company which should benefit from the continued growth in the healthcare sector is NHS-focused recruitment specialist Healthcare Locums (LSE:HLO). The company is the market leader in three divisions – qualified social workers, health professionals and doctors – and aims to double its 10% share of the £1.4bn market over the next few years. The group also operates internationally, and profits are forecast to rise by at least 25% in each of the next three years as it seeks to address the four million vacant healthcare jobs around the world, says The Sunday Telegraph. It trades on a forward p/e of 7.
And finally, providing support during some of the most critical stages of patient care – neurology and cancer treatment – pharmaceutical and medical device supplier Maelor (MLR) (now IS Pharmaceuticals (LSE:ISPH) has built an envious portfolio of products. Its blood plasma substitute, used in operating theatres when patients sustain heavy bleeding, managed to increase its market share from 16% to 26% last year, notes MoneyWeek's Paul Hill. Its anaesthetic freeze spray and catheter maintenance aid are also important fixtures in the theatre. The shares are valued on a p/e of 9.7.
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