1. UK Health Care Industry Landscape

The UK Health Care Industry encapsulated a list of companies that deals with medical services, manufacturing drugs, medical equipment and facilitating the provision of healthcare to patients. The various segments of the healthcare industry include Pharmaceuticals & Related Segments, Hospitals, Clinics; Healthcare IT; Laboratories and Testing Services; Healthcare Services and Facilities; Managed care; Medical Devices; Hospital Supplies Manufacturers and Healthcare IT.

The industry attracts a lot of Government intervention. Moreover, the UK healthcare system is well managed as the entire population in the UK got covered by the National Health System (NHS). NHS is financed by general taxation and run by the Department of Health. In addition, NHS remained as the largest employer in the UK healthcare sector by employing more than 1.5 million people, amongst the top five largest workforces in the world. Furthermore, the industry represented a total annual turnover of over £70 billion, of which £30 billion came from exports. The most prominent players of the UK healthcare sector are GlaxoSmithKline and AstraZeneca, followed by foreign companies such as Pfizer, Novartis, Hoffmann–La Roche and Eisai.

Key Trends in the Health Care Sector

Risk Exposures to the Health Care Sector

• Intense Competition: With the rise in demand and new entrants, there is strong competitive rivalry in the market, which puts pricing pressure.
• Stringent Regulations: The strict rules and policies regarding clinical trials, drug approval and authorisation of equipment can be a cumbersome task financially. It requires huge investments in research and developments. Small players can even face a liquidity crunch to pursue growth opportunities.
• Surge in UK Inflation: The UK inflation reached a 10-years high as it surged by around 4.2% for the 12 months ended October 2021. It may cause a sooner-than-expected interest hike.
• UK GDP: The UK economy witnessed a slowdown as the GDP grew quarter-on-quarter by around 1.3% during Q3 FY21, which remained merely lower-than-expected growth of around 1.50%.

SWOT Analysis

Benchmark Index Performance

Based on the YTD basis, the FTSE All-Share Pharmaceuticals & Biotechnology index has outperformed the FTSE 100 and the FTSE 250 index. The FTSE All-Share Pharmaceuticals & Biotechnology index generated a return of about 22.75%; however, the FTSE 100 produced a return of around 12.48%, and FTSE 250 generated a return of around 13.34%

Figure 1: YTD Benchmark Index Performance

(Source: Refinitiv; Analysis done by Kalkine Group)

Health Care Sector Outlook

The demand for drug stores and pharmacies witnessed a sudden hike amid the pandemic. Moreover, the developments in the clinical trials for developing the Covid-19 vaccine boosted the sector. In 2021, the growth of the pharma industry shall be supported by the availability of Covid-19 vaccines and their required demand. According to the Joint Committee on Vaccination and Immunization, the Covid-19 booster jabs had been approved for people aged from 40 to 49. NHS England officials also mentioned that they have planned to provide the Covid jab to children aged five to 11. However, the industry may face pressure from intensifying demand for services from the growing and ageing UK population. In a nutshell, the industry remained on track to achieve long-term growth driven by increased government expenditure and significant technological advancements.

2. Investment analysis and stocks under discussion (SN., CREO, MHC)

After gaining insights into the Health Care sector, we would look at the business model of three Health Care players listed on the London Stock Exchange.

A. Smith & Nephew PLC (LON: SN.)

(Recommendation: Buy, Potential Upside: 14.86%, Market Capitalization: GBP 10.99 billion)

Smith & Nephew PLC (LON: SN.) is an FTSE 100 listed Medical Technology Company with global operations.

SN had paid an interim dividend of 10.50 pence per share on 27 October 2021, while the ex-dividend date was 30 September 2021.

One Year Share Price Chart

(Data Source: Refinitiv, Analysis by Kalkine Group)

From a technical standpoint, the stock price is trading between the lower Bollinger band and the middle Bollinger band, indicating an upside potential in the stock price.

Valuation Methodology

Our illustrative valuation model suggests that the stock has an upside potential of 14.86% over the closing price of GBX 1,250.00 (as of 23 November 2021).

B. Creo Medical Group PLC (LON: CREO)

(Recommendation: Speculative Buy, Potential Upside: 16.83%, Market Capitalization: GBP 262.31 million)

Creo Medical Group PLC (LON: CREO) is an FTSE AIM 100 index listed medical device entity focusing on the emerging field of surgical endoscopy.

One Year Share Price Chart

 (Data Source: Refinitiv, Analysis by Kalkine Group)

From a technical standpoint, the stock price is hovering around the lower Bollinger band, indicating an upside potential in the stock price.

Valuation Methodology

Our illustrative valuation model suggests that the stock has an upside potential of 16.83% over the closing price of GBX 145.00 (as on 23 November 2021).

C. MyHealthChecked PLC (LON: MHC)

(Recommendation: Speculative Buy, Potential Upside: 27.32%, Market Capitalization: GBP 15.50 million)

MyHealthChecked PLC is the FTSE AIM All-Share index listed Company offering at-home testing brands such as MyHealthChecked and MyLotus.

One Year Share Price Chart

(Data Source: Refinitiv, Analysis by Kalkine Group)

From a technical standpoint, the 14-days RSI stood at ~60.75.

Valuation Methodology

Our illustrative valuation model suggests that the stock has an upside potential of 27.32% over the closing price of GBX 2.05 (as on 23 November 2021). 

*All forecasted data and peer information have been taken from REFINITIV.

*The reference data in this report has been partly sourced from REFINITIV.

*The "Buy/Speculative Buy” recommendation is also valid for the current price as covered in the report as on 24 November 2021.

*Depending upon the risk tolerance, investors may consider unwinding their positions in a respective stock once the estimated target price is reached.

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