Business Overview
Integrated Diagnostics Holdings Plc (LON: IDHC) is a woman-led consumer healthcare company in the African and Middle East region with operations in Nigeria, Sudan, Jordan and Egypt. The company has internationally recognised accreditations for more than 1,400 diagnostics tests. Presently, the company is having more than 400 branches and is looking to expand its portfolio through its Spike, Spoke and Hub business model. The company provides cost-effective services, accurate diagnostic testing and is a leading healthcare provider in every region and community it serves. The company’s main focus is to provide timely and accurate diagnostic services, and its laboratories are accredited through international bodies such as ISO (International Organization for Standardization) and CAP ( College of American Pathologists). The company’s services portfolio includes Immunology, Microbiology, Hematology, Endocrinology, Clinical Chemistry, Molecular Biology, Cytogenetics, Hatopathology and Radiology. The company also operates in business under different brand names such as alborg labs, biolab, ECHO lab, Ultra lab and alborg scan. The company served nearly 6.4 million customers in the year 2017. The company runs nearly 20,000 tests per hour, having an employee base of more than 500 people and 120 highly qualified doctors.

The current Independent Non-Executive Chairman is LORD ST John Of Bletso. PROF. DR. Hend EL Sherbini holds the responsibilities of the Chief Executive Officer.

Key Statistics


Top Shareholders

 
Recent News
On 27^th November 2019,Integrated Diagnostics Holdings announced its trading update for Q3 ending 30^th September 2019.

Operations Update
The company in Sudan opened 32 new branches and shut down 4 non-performing branches; the total branches stood at 442 as on 30th September 2019 versus 414 branches as on 30th September 2018. For nine months period of the financial year 2019, due to an increase in contract patients and walk-in patients, total patients increased by 11 per cent to 5.6 million from 5.0 million for 9M FY2018. Driven by strong contract test volumes, the company’s total number of tests surged by 18 per cent to 23.1 million for the period. The Average revenue per test for 9M FY2019 stood at EGP 71, reflecting an increase of 2 per cent year-on-year basis, while average revenue per test increased by 11 per cent (excluding the campaign) for the period. The company’s average revenue per patient went up by 7.5 per cent and 8.8 per cent (excluding the campaign) versus last year data for the same period. The company’s average test per patient stood at 4.1 in 9M FY2019, reflecting an increase of 6 per cent versus last year data for the same period. The company renovated eight branches and inaugurated new branch in October 2019 in Nigeria as a part of an expansion plan. The company witnessed strong momentum at its Al-Borg Scan, a radiology unit and would be launching new Shubra Branch in coming months. The company’s new subsidiary Wayak will be offering healthcare services to 13 million patients using data analytics.

Financial Highlights – Q3 Financial Year 2019 (30^th September 2019, Egyptian Pound, million)

(Source: Quarterly Report, Company Website)
 
For the nine months period ending 30^th September 2019, driven by strong growth in patients served, tests performed and improvement in pricing for the period,the company’s revenue surged by 20 per cent to EGP 1,649 million as against EGP 1,377 million for nine months of the financial year 2018. The gross profit stood at EGP 793 million for 9M FY2019 versus EGP 680 million for 9M FY2018, reflecting an increase of 17 per cent for the period. The gross profit margin stood at 48 per cent for the period. Driven by strong revenues and adoption of IFRS 16 resulted in an increase in the EBITDA by 27 per cent versus last year data. The company’s EBITDA stood at EGP 686 million for the nine months of the financial year 2019 versus an EBITDA of EGP 540 million for 9M FY2018. EBITDA margin increased to 42 per cent for 9M FY2019 from 39 per cent for 9M FY2018. The Normalised EBITDA (excluding Wayak's results) surged by 19 per cent to EGP 642 million for 9M FY2019 with a margin of 39 per cent. The company’s operating profit was up by 18 per cent to EGP 573 million for 9M FY2019 from EGP 486 million for 9M FY2018. The company, under its Wayak subsidiary launched new healthcare management services in Q3 FY2019, which resulted in higher SG&A expenses for the period. The company’s operating profit Excluding Wayak stood at EGP 576 million for the period, reflecting an increase of 19 per cent. The company’s net profit went up by 2 per cent to EGP 361 million for 9M FY2019 from EGP 355 million for 9M FY2018. The net profit (Excluding Wayak) increased by 3 per cent to EGP 365 million, while net profit margin stood at 22 per cent for 9M FY2019 versus 26 per cent for 9M FY2018. The company’s Bottom-line profitability declined due to higher interest expenses for financing Al Borg Scan's expansion and new headquarters. The company’s net profit (excluding Wayak's results and Normalising IFRS 16’s effect) stood at EGP 377 million for 9M FY2019, reflecting an increase of 6 per cent with a net margin of 23 per cent for the period. The company’s cash flow (net) from operations was reported at EGP 442 million for 9M FY2019 versus cash flow (net) from operations of EGP 365 million for 9M FY2018. 

Key Performance Indicators

(Source: Quarterly Report, Company Website)

 
Revenues

Revenue is the income generated by the company from its normal day to day operations. The company’s total revenue increased by 20 per cent from EGP 1,377,350 thousand for 9M FY2018 to EGP 1,648,376 thousand for 9M FY2019. The company also segregated its revenue into two segments being Contract and Walk-In. The company’s revenue from Contract business, and Walk-in business surged by 22 per cent and 17 per cent, respectively.
Patients

The company’s patients increased by 11 per cent from 5,018 thousand for 9M FY2018 to 5,587 thousand for 9M FY2019. The company’s patient under Contract business and Walk-in business surged by 13 per cent and 7 per cent, respectively.

Revenue Per Patient

The company’s revenue per patient increased by 7 per cent from EGP 274 for 9M FY2018 to EGP 295 for 9M FY2019. The company’s revenue per patient from Contract business and Walk-in business surged by 7 per cent and 10 per cent, respectively.

Tests

The total tests conducted by the company increased by 18 per cent to 23,078 thousand for 9M FY2019 from 19,636 thousand for 9M FY2018. The total tests under Contract business and Walk-in business surged by 21 per cent and 7 per cent, respectively.

Revenue Per Test

The company’s revenue per test increased by 2 per cent to EGP 71 for 9M FY2019 from EGP 70 for 9M FY2018. The company’s revenue per test from Contract business remained flat and Walk-in business showed an increase of 9 per cent for the period.

Financial Ratios
 
 

In the H1 FY2019 period, the company’s hospitals increased to 424 versus 405 hospitals in H1 FY2018. The reported gross margin in H1 FY2019 declined by 1.5 per cent to 46.9 per cent against 48.4 per cent reported last year for the same period. The reported EBITDA margin of 41.5 per cent for the H1 FY2019 stood higher than the industry median of 21.2 per cent. The reported operating margin in H1 FY2019 increased by 0.6 per cent to 34.5 per cent from 33.9 per cent reported last year for the same period. The reported Pretax margin of 32.7 per cent for the H1 FY2019 stood higher than the industry median of 7.3 per cent. Net margin reported was 20.3 per cent for the H1 of the financial year 2019, reflecting a decline of 4.5 per cent when comparedwith last year data for the same period. Return on equity for the H1 of the Financial year 2019 stood at 10.5 per cent, which stood higher than the industry median of 4.6 per cent. On the liquidity front, Integrated Diagnostics HoldingsPlc’scurrent ratio was lower than the industry median of 1.13, reflecting insufficient current assets to pay its short-term obligations. On leverage front, the debt-equity ratio of the Integrated Diagnostics Holdings Plc’s was 0.22x, which was lower as compared to the industry median of 1.58x, reflecting that the company is less leveraged as compared to its peers.
 
Share Price Performance
 

Daily Chart as at December-12-19, before the market close (Source: Thomson Reuters)

On December 12, 2019, at the time of writing (before the market close, at 1:15 PM GMT), Integrated Diagnostics Holdings Plc shares were trading at USD 4.23, up by 1.44 per cent against the previous day closing price. Stock's 52 weeks High and Low are USD 5.20/USD 3.75. Stock’s average traded volume for 5 days was 26,829.00; 30 days – 152,413.87 and 90 days – 87,104.28. The average traded volume for 5 days was down by 82.40 per cent as compared to 30 days average traded volume. The company’s stock beta was 0.20, reflecting lower volatility as compared to the benchmark index. The outstanding market capitalisation was around USD 625.50 million, with a dividend yield of 4.22 per cent.

Valuation Methodology
Method 1: Price to Earnings Approach (NTM)


To compare Integrated Diagnostics HoldingsPlc withits peers, Price/Earnings multiple has been used. The peers are Ashley House Plc(NTM Price/Earnings was 0.50), Totally Plc(NTM Price/Earnings was 0.11), Animalcare Group Plc(NTM Price/Earnings was 0.21), Medica Group Plc(NTM Price/Earnings was 0.15) and Watchstone Group Plc(NTM Price/Earnings was 0.10). The average of Price/Earnings (NTM) of the company’s peers was 0.21x (approx.)

Method 2: Price to Cash Flow Approach (NTM)
 


To compare Integrated Diagnostics HoldingsPlc with its peers, Price/Cash Flow multiple has been used. The peers are Watchstone Group Plc(NTM Price/Cash Flow was 0.40), Animalcare Group Plc(NTM Price/Cash Flow was 0.15), Maternus Kliniken AG(NTM Price/Cash Flow was 0.27), Medica Group Plc(NTM Price/Cash Flow was 0.10) and Medicover AB(NTM Price/Cash Flow was 0.07). The Average of Price/Cash Flow (NTM) of the company’s peers was 0.198x (approx.)

Growth and Risk Assessments
The company keeps on launching new platforms and upgrade the old products and services to become one of the market leaders in the healthcare market. The company provides cost-effective services, accurate diagnostic testing and is a leading healthcare provider in every region and community it serves. The company’s operations are impacted by the political and security risks as its primarily operates in Egypt, which is prone to occasional civil disorder and Nigeria, which is facing security challenges. The company’s operations are also impacted negatively by fluctuations in the forex rates as the majority of supplies are acquired in EGP (Egyptian pounds).

Conclusion
The company has shownsolid performance in the Q3 of the financial year 2019. Both the top-line and the bottom-line performance have improved for the period. The company also witnessed an increase in the number of patients from Contract business and Walk-in business for the period.

The company is opening new branches in Sudan and is renovating the existing branches in Nigeria as a part of the expansion program. The company’s radiology unit has witnessed a strong momentum and the company would be launching a new branch in the coming months. With the new subsidiary, the company will be offering healthcare services using data analytics to a base of 13 million patients.

Over the course of 4 years (FY14 - FY18), the company’s net income surged from EGP 860.2 million in FY14 to EGP 1,921.5 million in FY18. Compounded annual growth rate (CAGR) stood at 22.25 per cent.

Based on the decent prospects and support from the valuation as done using the above two methods, we have given a “BUY” recommendation at the closing price of USD 4.17 (as on 11^th December 2019) with high single-digit upside potential based on 0.21x NTM Price/Earnings (approx.) on FY19E earnings per share (approx.) and 0.198x NTM Price/Cash Flow (approx.) on FY19E cash flow per share (approx.).
 
 
*All forecasted figures and peers have been taken from Thomson Reuters. Currency exchange rate taken for 1 EGP = 0.062 USD
*The “Buy” recommendation is also valid for the current price as covered in the report (as on 12^th December 2019).

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