The number of new cases of Covid-19 in Brazil has been increasing, turning on the warning signal again and with analysts also keeping an eye on the impacts on the national stock market.
Second country in the world with the highest number of deaths from Covid-19, according to official data, with almost 690 thousand since the beginning of the pandemic, Brazil registered an increase in cases of more than 230% in the comparison of last week with the beginning of November, returning to a level last seen at the end of August. The new infections, caused by the new subvariant Omicron BQ.1 and others, have milder symptoms for those with the complete vaccination schedule, which means that the number of deaths does not register the same increase.
Even so, hospitals have registered an increase in the number of hospitalized patients, the majority without having completed the vaccination schedule. According to the Ministry of Health, more than 69 million Brazilians have not yet received the first booster dose, which is indicated for everyone over 12 years old.
With an eye on these trends, Bank of America analysts highlighted the possible impacts for companies in the healthcare sector.
The analysis team points out that, despite the increase in cases, it is still below the 2022 peak of an average of 300,000 per day.
“Covid death rates remain relatively low and there is no evidence of greater impacts on higher hospitalization We do not see major impacts for the healthcare sector and expect impacts from Covid for 4Q22 [quarto trimestre de 2022] similar to 3Q22”, point out the analysts.
The volumes of confirmed cases of Covid-19 have been increasing since the beginning of November, mainly from the second week, when the daily average more than doubled to 26 thousand confirmed cases of Covid per day (from 7 to 13 November), in compared to a daily average of 11,000 a week earlier. Most recently, the number of new cases is 5 times higher than two weeks ago and twice as high as the previous week, with the daily average of 52,000 tests per day from 14 November to 18 November.
However, this volume of new cases is still below the levels observed in the Covid peak periods at the beginning of the year, when the daily average fluctuated between 300,000 and 400,000 new cases per day, considering January 22 and February 22 .
“It is worth noting that during 1Q22, revenue from Covid tests for the Fleury FLRY3 was 6.2% of total gross revenue, and more recently in 3Q22, when the daily average of new COVID cases was 75 thousand, this percentage of revenue dropped to 1.5%. This gives us an indication that to have more relevant impacts, the increases in new cases in Brazil would have to be more expressive”, points out the bank.
Analysts performed a sensitivity analysis and pointed out that: i) if the level of 100,000 new cases per day occurs by the end of December 2022, there would be an average of 57,000 new cases in 4Q22, below 2Q22 and 3Q22; ii) in the scenario of 150 thousand new cases per day until the end of December 2022, the 4Q22 average would be closer to the 3Q levels.
BofA also points out that the Covid-19 mortality data also brings a better understanding of the level of hospitalization, as hospitalizations are normally part of the treatment. Mortality per day stood at 149 between November 14th and November 18th, while in the first two weeks of November the average was 125 per day and lower than in 3Q22, with an expansion in vaccination coverage.
Thus, for analysts, despite the increase in the number of new cases of Covid, they see the potential impacts on the health sector as limited, not changing much the scenario seen in 3Q22. For Fleury (for those with a buy recommendation and target price of BRL 24), they expect a continuous impact on gross revenue between 1% and 2%, in line with the 1.5% seen in 3Q22. For hospitals and healthcare operators, they also do not see major impacts, with an impact similar to 3Q22.
With regard to the last earnings season, BofA highlighted the numbers of Rede D’Or (RDOR3) in the sector, which had a solid quarter, with an increase in the average ticket and cost control that led to an expansion of margins. Fleury, on the other hand, had stronger numbers than expected, as the company is gaining volume over time, either through mergers and acquisitions or through organic growth.
On the other hand, Qualicorp (QUAL3) shares fell more than 15% in the session after the results were announced. The negative highlight, once again, was the very high churn (cancellation rate), with data on gross additions of lives challenging in view of a higher price pass-through in this period.