Mediclinic International Plc (LON: MDC)

Mediclinic International PLC (LON: MDC) is an FTSE 250 listed multinational private healthcare services company. MDC was founded in 1983 with headquarter in Stellenbosch, South Africa. The Company geographically operates in Switzerland, Namibia, South Africa, and the United Arab Emirates. It also holds a minority interest in Spire Healthcare Group Plc. Spire is a UK-based and LSE-listed private healthcare group. Recently, a cash offer for the shares of Spire from Ramsay Health Care Limited has been rejected by Spire’s shareholders. MDC provides specialist-oriented and multi-disciplinary services, and has expanded substantially over the years. The Company has more than 70 hospitals, eight sub-acute and specialised hospitals and several outpatient and day case clinics.  

On 11 November 2021, MDC would declare its H1 FY2022 results.

Recent trend of dividend payments

The next dividend is likely to be declared on 11 November 2021 with an ex-dividend date of 2 December 2021. It is expected to be paid on 18 December 2021.

Growth Prospects

• Leading market position: The Company has a leading market position in healthcare services. Also, it has 35 years of experience in healthcare and it operates in three continents.
• High concentration of insured patients: The Company’s around 95% of revenue is derived from insured patients. Hence, there is less possibility of its receivables turning into bad debts.
• Commitment to sustainable development: Due to its ESG performance, MDC achieved prime status from ISS-ESG. It also received top MSCI ESG AAA rating for three years in a row. The Company recently signed in epihc, an International Finance Corporation and World Bank joint initiative. These achievements and initiatives could win all the stakeholders’ trust.
• Centrally coordinated clinical response: The Company has a centrally coordinated clinical response system with a central analytics team to turn efficient models into forecasts. It helped the Company to continue its strategy execution efficiently and effectively during the pandemic. It also provides immense confidence for future success.

Key Risks 

• Disruptive innovations: There could be introduction of new disruptive technologies in the medical care. If the Company is slow to respond to these changes, it could lead to erosion of the business.
• Economic downturn: A slowdown in economic environment could lead to lower household disposable income. Hence, self-funding patients could face hardships in paying the medical bills, leading to bad debts for the Company.
• Changes in the regulatory environment: There could be material changes in the regulatory environment surrounding the healthcare market. Failure or delay in adapting effectively could lead to significant cost incurrence.
• Pandemic disruptions: A pandemic could create severe disruptions to the healthcare industry. The Company needs to have an efficient system in place to manage the pandemic.
  

Now we will analyse some key fundamental and shareholders statistics of Mediclinic International Plc.

Recent Development 

Directorate change: On 27 July 2021, the Company announced that two new independent non-executive directors, Natalia Barsegiyan and Zarina Bassa have been appointed. On 3 August 2021, the Company further notified that Zarina Bassa had also been appointed as the senior independent director of Investec plc and director of its three subsidiaries.

Financial and Operational Highlight (for the year ended 31 March 2021, as of 26 May 2021)

(Source: LSE Website)

• Driven by restrictions on non-urgent elective procedures amid the pandemic induced lockdowns, FY2021 revenue was down 3% YoY.
• Due to the revenue decline and fixed employee costs, EBITDA in FY2021 was down 21% YoY.
• However, MDC’s cash conversion improved significantly in H2 FY2021 to 77% of adjusted EBITDA, which led to 9% YoY reduction in net debt.
• The management suspended dividend payments in FY2021 to maintain liquidity.
• The Company has responded well and efficiently to the Covid-19 pandemic, using its centrally coordinated Clinical Services function. It also constantly re-evaluated its response and optimised treatment pathways for patients.
• MDC employed a fluid approach to handle elective procedures and outpatient treatments. Its hospitals also adapted efficiently to local restrictions.

Financial Ratios (H2 FY2021)

Share Price Performance Analysis

 (Source: Refinitiv, Research done by Kalkine Group)

On 5 August 2021, at 7:05 AM GMT, MDC’s shares were trading at GBX 281.80, down by 0.14% against the previous day closing price. Stock 52-week High and Low were GBX 349.00 and GBX 241.40, respectively.

On a daily chart, the momentum indicator RSI (14-period) is trading at ~39.96 level and moving towards the oversold zone. Also, the stock price is sustaining between the middle and lower Bollinger bands. Hence, there could be an uptick in the stock price in the near term.

In the last year, MDC’s stock has delivered a positive return of ~4.99%.

Valuation Methodology: Price/Earnings Approach (NTM) (Illustrative)

Business Outlook Scenario

MDC delivered a resilient performance in FY2021, despite market disruption. With its solid profit conversion and strong cash generation, it has reduced its net incurred debt to £1,483 million in FY2021 from £1,622 million in FY2020. The patient demand is expected to rise amid the easing of restrictions and resumption of non-urgent patient treatment. The management expects revenue and EBITDA growth in FY2022, driven by this encouraging momentum. Furthermore, the Company is expanding across Dubai and Abu Dhabi. The Company could benefit from its leading market position and technology, its high concentration of insured patients, its commitment to sustainable development and its centrally coordinated clinical response system for FY2022 and beyond.

Considering the Company’s solid growth opportunity, its strong cash generation, expected solid demand from the patients, the better profitability, liquidity  and leverage position of the business than the industry, and support from the valuation as done using the above method, we have given a “BUY” recommendation on Mediclinic International Plc at the current price of GBX 281.80 (as of 5 August 2021 at 7:05 AM GMT), with lower-double digit upside potential based on 16.08x Price/NTM Earnings (approx.) on FY22E earnings per share (approx.).

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

*All forecasted figures and Peer information have been taken from Refinitiv.

*The dividend yield is subject to change as per the stock price movement.

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

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