The elements that have supported the buoyancy of equity prices in 2021 are expected to fade in 2022. The intoxicating combination of unrivalled fiscal and monetary stimulus and the benefits of the re-opening of economies have driven up the price of ‘just about everything.’ As we move into a new year, it does appear that central banks are now looking to curtail the liquidity stimulus, as inflation accelerates, and policy makers consider an earlier timetable for shrinking bond purchases (tapering) and potentially raising interest rates.
While a key support mechanism for asset prices is set to tighten (albeit modestly) earnings for the ASX 200 are still expected to grow in 2022, though at a slower pace than 2021.
M&A activity in the healthcare sector was elevated in December with the core portfolio stocks of CSL, Healius, and Ramsay Health Care announcing acquisitions. Each of the acquisitions underline opportunities for the healthcare sector beyond the disruptions of COVID-19 and provide a constructive backdrop for the long-term treatment of chronic health conditions.
CSL announced plans to acquire Vifor Pharma for an equity value of US$11.7bn. The transaction provides exposure to the renal disease market where the prevalence of chronic kidney disease (CKD) is expected to growth at ~8% per annum. Vifor’s product portfolio is complimentary to CSL’s existing R&D pipeline in cardiovascular disease. The transaction is also expected to be EPS accretive in the first full year of CSL ownership, including US$75m of synergies to be achieved over 3 years.
Healius announced the acquisition of Agilex Biolabs for $301m, an Australian bioanalytical laboratory company which provides exposure to the growing demand for clinical trials, which are increasingly outsourced by pharma companies. The acquisition diversifies Healius’s revenue streams and provides exposure to the global clinical trial sector. The company expects the acquisition to deliver low-single digit EPS accretion in the first full year of ownership.
Ramsay Health Care announced that it intends to acquire Elysium Healthcare for A$1.4bn, a UK operator of hospitals and care homes for individuals with mental health conditions. The acquisition provides Ramsay exposure to the UK Mental Health market estimated to be worth £15.2bn with the UK government committed to increase funding for mental health diagnosis. The company expects the acquisition to be mid-single digit EPS accretive in FY23.
Amid the persistence of the Covid-19 virus and at a time when central banks are actively looking to unwind ultra-accommodative policy settings, we do expect earnings growth and market valuations to moderate. In an environment of slower, but still positive growth in profits, a focus on dividend yield should become a more prominent consideration for investors. Against this backdrop, an emphasis on earnings quality, dividend sustainability and conservatively positioned balance sheets remains imperative.
