After a bruising de-rating, Ramsay Health Care is starting to look like a recovery story. Perpetual portfolio manager, NATHAN HUGHES, explains how shareholder engagement is helping sharpen strategy and tighten capital discipline
- Activism drives strategy, capital discipline reforms
- Ramsay recovery: New leadership tightens investment criteria
- Find out about Perpetual Strategic Capital Fund
Founded by Paul Ramsay in Sydney in 1964, Ramsay Health Care transformed into Australia’s dominant private hospital network through disciplined organic expansion and a handful of astute domestic acquisitions in the early 2000s.
Ramsay owns 48 of the 72 hospitals in its 9,300-bed Australian network. With the cost of a new 100-bed acute hospital well over $150 million today, the intrinsic value of Ramsay's portfolio accounts for a substantial component of its market valuation, according to Nathan Hughes, co-portfolio manager of Perpetual Strategic Capital Fund.
Outside of the core Australian business, the company’s $5 billion offshore expansion involving several acquisitions across Europe and the UK between 2010 and 2022 has delivered poor returns on invested capital.
The company’s problems were further compounded by the underperformance of UK mental health operator Elysium – which it acquired for £775 million from private equity firm BC Partners in January 2022. The profitability of the offshore assets has been significantly impaired at a time when the core franchise was also facing margin pressures.
Perpetual Asset Management (Perpetual) has a long history of active ownership, engaging with ASX-listed company boards and management to extract value for shareholders.
Over several decades, Perpetual’s active ownership has driven de-mergers, strategic alternatives, special dividends, capital returns, acquisitions, board changes, recapitalisation and has blocked mergers and acquisitions.
Perpetual has been advocating for change at Ramsay. The company has taken a series of steps including changes at the board and executive levels, capital allocation frameworks and structural changes to the portfolio.
Firstly, David Thodey assumed the role of chair in late 2023, and the board recruited Natalie Davis as chief executive in 2024, an external appointment that investors expected to bring a sharper turnaround tempo.
“Thodey, who served as a lead independent director since 2020, brought an outsider's discipline to capital allocation – his record transforming Telstra from a bloated incumbent into a more focused business had established him as someone willing to make difficult structural decisions,” explains Hughes.
“His appointment triggered a meaningful change in the board's investment criteria.”
This has culminated in Ramsay tightening its investment criteria, putting more weight on post-tax cash returns and internal rate of return hurdles — and, crucially, applying that discipline as a screen for divestments as well as new projects. This discipline has seen capital expenditure guidance repeatedly reduced in recent periods.
In February 2025, Ramsay appointed Goldman Sachs to examine options for its 53 per cent stake in Ramsay Santé, calling time on its ill-fated investment.
Hughes says the board and management changes represent genuine governance inflection.
“Thodey's capital discipline framework and Davis' outsider execution capability are precisely the combination required to re-rate the stock,” he says.
“The Santé and Elysium situations are solvable. They are largely separable from the core and their resolution – whether via demerger, trade sale or in-specie distribution – would crystallise the value of the Australian business as a standalone entity at a multiple consistent with its genuine quality.”
Additional changes at the executive level have further sharpened the focus on operational improvement in the core Australian business, and momentum in recent quarters suggest margins are at an inflection point.
Ramsay’s greater operational and capital discipline is a welcome change for investors. Free cash flow generation looks set to improve, raising the prospect, in Perpetual’s opinion, of higher returns to shareholders.
About Nathan Hughes and Perpetual Strategic Capital Share Fund
Nathan Hughes is a portfolio manager with Perpetual’s Australian equities team. He joined Perpetual in 2010 and has more than 20 years of investing experience.
Nathan manages the Perpetual ESG Australian Share Active ETF (ASX:GIVE), including its unlisted share class, as well as the Perpetual Income Share Fund. He is also co-portfolio manager for Perpetual Strategic Capital Fund.
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