Global private hospital group Ramsay Health Care Ltd [ASX:RHC] saw a 5% drop in their share price within the first half hour of trading today, and hovered around this spot in the red since.
At time of writing, shares are trading at $62.03 — a 4.86% drop from yesterday’s close of $65.20.
The fall occurred after the company announced that Paul Ramsay Holdings — RHC’s largest shareholder — had completed the underwritten block trade sale of 22 million RHC shares at $61.80 per share.
The market was informed of this upcoming sell-off yesterday after market close, which is why the share price moved so suddenly this morning upon news of its completion.
The RHC share price has dropped to sit closer to this underwritten sell price. This may be coincidental, or else a reflection of the newly perceived value of these shares.
Today we discuss the possibility of the latter.
Selling for a good cause
The sell-off equates to approximately $1.4 billion dollars for Paul Ramsay Holdings and the Paul Ramsay Foundation, which aims at ‘breaking the cycle of disadvantage’.
Paul Ramsay’s reduction in shareholding is therefore for the purpose of charity, rather than the result of a change of heart in the future of the company.
Indeed, the foundation claims that they look for organisations ‘who, like us, are committed to achieving lasting and systemic change to break the cycle of disadvantage’.
And as this sell-off will not take away their position as the largest RHC shareholder — still retaining a 21% stake — it’s safe to assume Paul Ramsay do not think ill of RHC.
Paul Ramsay Chairman Gregory Hutchinson also insisted that the foundation ‘does not possess any information that is not generally available and that a reasonable person would expect to have a material effect on the price or value of the Company’s [RHC] shares’.
Of course, once settlement occurs on the block trade, which will be this Thursday 19 September, the RHC share price may experience some more time in the red while they recover from the sudden additional supply of shares diluting demand.
Another way to invest in health
Will all this being said, the future potential of RHC still remains in question.
While they are a high-quality business valued at around 20-times earnings, their future performance depends on the amount of people willing to opt for private health cover — which is difficult to determine.
It’s a similar case for any sector of the market — there are always variables which we as investors are unable to control, and so try to avoid.
The thing is, where there are stronger variables, there is also stronger volatility…meaning bigger wins when prices swing up, and bigger losses when they swing down.
Biotech stocks are a particularly fun challenge, with many variables you have to be aware of.
If you’re after some health diversification in your portfolio, and are intrigued by high-risk plays, have a read of this report now.
For Money Morning