Business Overview
NMC Health Plc (LON: NMC) was incorporated in the year 1975 and is the largest private healthcare company in the UAE. It provides healthcare services internationally with the U.A.E (United Arab Emirates) and Spain being the major markets. The company owns and manages 135 (approximately) healthcare facilities which include hospitals, surgery centres, fertility centres and medical centres. The company is also involved in the distribution of medical equipment, pharmaceutical products, veterinary products, cosmetics, IT products and consumer products. The company specialises in Aesthetic, Reconstructive and Plastic Surgery, Allergy and Immunology, Anaesthesiology, Audiology, Ayurveda, Bariatric Surgery, Cardiac Sciences, Child Guidance, Critical Care and I.C.U, Dentistry, Dermatology, Dietics and Nutrition, Embryology and Genetics, Emergency Medicine, Endocrinology, Diabetology and Metabolic Disorders, ENT, Head and Neck Surgery, Family Medicine, Foetal Medicine, Gastroenterology, Gastrointestinal Surgery, General and Laparoscopic Surgery, General Medicine, Home care, Homeopathy, Infection Control, Internal Medicine, IVF and Infertility, Midwifery Services, Naturopathy, Neonatology, Nephrology, Neuroscience, Nuclear Medicine, Obstetrics and Gynaecology, Occupational Medicine, Oncology, Ophthalmology, Oral and Maxillofacial Surgery, Orthopaedics, P.I.C.U, Paediatrics, Pathology, Physical Medicine and Rehabilitation, Physiotherapy and Pain Management, Podiatry, Psychiatry, Psychology, Pulmonology, Radiology, Rheumatology, Speech Therapy, Urgent Care, Urology and Andrology, Vascular and Endovascular Surgery.

Key Statistics




Top Shareholders

 

Recent News

In view of a recent short seller report (from Muddy Waters Research), NMC faced a backlash from the investors while soon it was back on a recovery track. The report primarily raised doubts on NMC Health Plc for managing its finances, and the company lost over £2.3 billion of market value. The Muddy Waters also warned over understated debt, inflated margins, overpayment for acquisitions and poor corporate governance as a result of which NMC’s shares dropped by 42 per cent.

In response to the allegations by Muddy Waters Research, the company stated all the accusations are misleading, containing many errors of fact, baseless and appear principally unfounded. The company will review accusations, insinuations and assertions and will respond back shortly. The company has announced a share buyback program of $200 million and buyback of subordinated debt of $90 million, showing confidence in its balance sheet.

Capital Markets Day Update

On 21st October 2019, NMC Health informed that its H2 FY2019 business performance is performing well and expects H2 guidance to be even stronger than H1 FY2019 and restates full-year guidance. The company’s strategy is offering a substantial advantage in all the main markets in which it operates. The company expects double-digit growth in top-line and the bottom-line performance in FY2020.

In the financial year 2019, the company’s top line is expected in the range of US$2,500-US$2,540 million at Post-IFRS 16 and Pre-IFRS 16 basis. The net income to equity holders for the financial year 2019 expected to be in the range of US$297-US$305 million at Post-IFRS 16 (US$320-US$330 million at Pre-IFRS 16 basis). The net debt to EBITDA will be below 3.4 times in the financial year 2019.

The company is expecting robust double-digit organic revenue and EBITDA growth in FY2020. The aforementioned facilities are anticipated to contribute towards the revenue of US$45-US$55 million in 2020 and, as a result of being in the initial ramp-up phase, it estimated a US$18-20 million of loss at the EBITDA level from new projects (post-IFRS 16) in 2020. Growth capex is expected at US$90-US$100 million, while maintenance capex is expected to be around 3 per cent of revenues for the year.

Financial Highlights - H1 Financial Year 2019 (30th June 2019, USD, Million)


(Source: Interim Report, Company Website)

In the first half of the financial year 2019, the group’s revenue climbed to the US $1,236.0 million (Pre-IFRS16) and recorded a growth of 32.6 per cent on a YoY basis. The company’s EBITDA surged by 22.5 per cent to the US$ 276.3 million (Pre-IFRS16) against the year-over period. However, EBITDA Margin (Pre-IFRS16) narrowed by 180bps to 22.4 per cent from 24.2 per cent, and Earnings Per Share (Pre-IFRS16), recorded a growth of 29.1 per cent on a YoY basis to 72 cents. Despite a decline in the EBITDA margin, the group’s Net-Debt-to-EBITDA (Pre-IFRS16) declined to 2.7x at the end of the H1 FY19.

Key Performance Indicators


Revenues

Revenue is the income generated by the company from its normal day to day operations. The company’s total revenue increased from USD 1,603.4 million in FY2017 to USD 2,057.3 million in FY2018.


EBITDA

EBITDA measures the company’s ability to generate cash as well as providing a useful measure of operating performance. The EBITDA for FY2018 surged to USD 487.4 million from USD 353.4 million in FY2017.
 

Profit After Tax

PAT (Profit after tax) is used to measure the performance of the company after the inclusion of interest expense and accounting effects for business combinations. The company’s Profit after tax increased to USD 251.9 million in FY2018 from USD 209.2 million in FY2017.


Patients

The company’s patients increased from 5.8 million in FY2017 to 7.5 million in FY2018. The large patient base remained the key factor that differentiates NMC from its peers.


Licensed Beds


The total number of beds approved by the regulatory authority. NMC’s licensed beds surged by 42 per cent to 2,186 beds in FY2018 from 1,539 beds in FY2017. The increase represents the organic and inorganic expansion of the business.

Financial Ratios 

 

The reported gross margin in H1 FY2019 surged by 3.6 per cent to 44.1 per cent against 40.5 per cent reported last year for the same period. The reported EBITDA margin of 26.3 per cent for the H1 FY2019 stood higher than the industry median of 20.5 per cent. The reported operating margin in H1 FY2019 declined by 0.8 per cent to 18.5 per cent from 19.3 per cent reported last year for the same period. The reported Pretax margin of 11.4 per cent for the H1 FY2019 stood higher than the industry median of 6.2 per cent. Net margin reported was 11.3 per cent for the H1 of the financial year 2019, reflecting a decline of 1.2 per cent when comparedwith the last year data for the same period. Return on equity for the H1 of the Financial year 2019 stood at 10.2 per cent, which stood higher than the industry median of 4.3 per cent. On the liquidity front, NMC HealthPlc’scurrent ratio was higher than the industry median of 1.10, reflecting sufficient current assets to pay its short-term obligations. On leverage front, the debt-equity ratio of the NMC Health Plc’s was 2.01x, which was higher as compared to the industry median of 1.35x, reflecting that the company is more leveraged as compared to its peers.
 
Share Price Performance
 

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

On December 19, 2019, at the time of writing (before the market close, at 10:00 AM GMT), NMC Health Plc shares were trading at GBX 1,562.50, down by 9.63 per cent against the previous day closing price. Stock's 52 weeks High and Low are GBX 3,059.00/GBX 1,450.00. Stock’s average traded volume for 5 days was 2,745,549.20; 30 days – 1,013,203.03 and 90 days – 771,539.94. The average traded volume for 5 days was up by 170.98 per cent as compared to 30 days average traded volume. The company’s stock beta was 0.74, reflecting lower volatility as compared to the benchmark index. The outstanding market capitalisation was around GBP 3.63 billion, with a dividend yield of 1.05 per cent.

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



To compare NMC Health Plc with its peers, Price/Earnings multiple has been used. The peers are Caretech Holdings Plc(NTM Price/Earnings was 9.33), Mediclinic International Plc(NTM Price/Earnings was 14.34), Integrated Diagnostics Holdings Plc(NTM Price/Earnings was 15.01), UDG Healthcare Plc(NTM Price/Earnings was 18.62) and Spire Healthcare Group Plc(NTM Price/Earnings was 19.52). The average of Price/Earnings (NTM) of the company’s peers was 15.36x (approx.)

Method 2: Price to Cash Flow Approach (NTM)



To compare NMC HealthPlc with its peers, Price/Cash Flow multiple has been used. The peers are Mediclinic International Plc(NTM Price/Cash Flow was 6.98), Spire Healthcare Group Plc(NTM Price/Cash Flow was 7.52), Hikma Pharmaceuticals Plc(NTM Price/Cash Flow was 7.30), Caretech Holdings Plc(NTM Price/Cash Flow was 11.81) and Integrated Diagnostics Holdings Plc(NTM Price/Cash Flow was 12.43). The Average of Price/Cash Flow (NTM) of the company’s peers was 9.21x (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 group is exposed to the effects of political and economic risks, including the impact of Brexit, as the market expects macro-economic uncertainty or downturn in the UK economy as a result of Brexit. Global political uncertainty regarding trade policy also poses a risk for the group, including protectionist measures and regulation or legislation in local markets.

Conclusion

The company said that they would report a favourable performance in the second half of the financial year 2019. Consequently, the financial year 2020 is expected to deliver double-digit growth in the top line and bottom line. The group’s management expects to open four new hospitals: two in Oman and two in the UAE. These facilities will improve the total capacity of up to 380 beds. At the end of 2019, the company have a ten-bed cosmetics hospital scheduled for opening in Dubai. The company will reduce the debt in H2 FY2019. NMC Health is also in the process of achieving regulatory approvals for up to US$200 million, and opportunistic buy-back program announced previously this year. Due to the allegations by Muddy Waters Research, the company’s share fell by 42 per cent on 17^th December. In response to the allegations by Muddy Waters Research, the company stated all the accusations are misleading, containing many errors of fact, baseless and appear principally unfounded.

Over the course of 4 years (FY14 - FY18), the company’s revenue surged from USD643.9 million in FY14 to USD2,057.3 million in FY2018. Compounded annual growth rate (CAGR) stood at 33.7 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 current price of GBX 1,489.87 (as on 19^th December 2019, before the market close at 10:45 AM GMT) with lower double-digit upside potential based on 15.36x NTM Price/Earnings (approx.) on FY19E earnings per share (approx.) and 9.21x 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 USD = 0.76287 GBP.

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