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Discovery 'warning signs' send investors 'skittering'

Of all of the listed companies likely to be impacted by the arrival of National Health Insurance (NHI), medical scheme administrator Discovery appears to have been hit the hardest, says a Daily Maverick report. It says while much about the recently tabled NHI Bill is not clear, what seems apparent is that the role of medical schemes will be limited to providing cover for benefits not provided by the fund. In addition, the Bill makes no provision for private scheme administrators.

The report says considering that 39% of Discovery’s bottom line profit comes from this activity, the advent of NHI – even if it’s a decade away – might concern some investors. As a result, the share prices of administrators, as well as the private hospital companies and drug manufacturers, all dipped sharply on the news, which really hit the street on the 9th August, with Discovery losing 15% of its value, AfroCentric 20%, Momentum 3.5%, Netcare 10% and Aspen 21.5%.

Since then most of these companies have seen their share price stabilise – although they have not recovered – with the exception of Discovery, which continued on its downward trajectory before coming back a bit. The report says this makes one wonder if there is more at play?

As it turns out, the report says some investors are concerned about Discovery’s balance sheet, and its accounting practices, which are said to be more "aggressive" than the likes of Sanlam and others in the insurance sector. In this frazzled investment climate, investors are exceedingly cautious and any warning signs are enough to send them skittering.

[link url="https://www.dailymaverick.co.za/article/2019-08-21-discoverys-red-flags/"]Daily Maverick report[/link]

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