NMC Health Plc (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 has two business operations being Healthcare & Distribution and Services. 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.

Financial Highlights (FY 2018, US$ million)

(Source: Annual Report, Company Website)

In the Financial year 2018, NMC Health Plc’s reported revenue was $2,057.3 million in the financial year ending December 2018, against $1,603.4 million in the financial year 2017. There was an increase of 28.3 per cent due to the introduction of mandatory health insurance policy in Dubai and all the divisions have shown significant growth as compared to the previous year. The EBITDA for the FY 2018 stood at $487.4 million as compared to $353.4 million in FY 2017. There was an increase of 37.9 per cent due to accelerated revenue growth in the current financial year and an increase in EBITDA margin by 170 bps to 23.7 per cent as compared with the financial year 2017. The profit for the year in FY 2018 stood at $251.9 million as compared to $209.2 million in FY 2017. The basic EPS for FY 2018 stood at US$1.196 against US$0.910 in FY 2017. Adjusted EPS surged by 28.5 per cent to US$1.332 in FY 2018 as compared to US$1.036 in FY 2017.

Share Price Performance

Daily price chart as on April-04-2019, before the market close. (Source: Thomson Reuters)

On 4th April 2019, at the time of writing (before the market close, GMT 9:54 AM), shares of NMC were quoting at GBX 2,421 and up by 5 points or 0.21% against its previous day close. During the last one-year shares have reached to a 52w high of GBX 4,376.00 and a 52w low of GBX 2,110.00 and at the current price level (as indicated in the price chart) shares were trading 44.68% lower than its 52w high level and 14.74% higher against its 52w low level. The company’s stock beta was 0.59, reflecting lower volatility movement of the stock with the index.

Recent News
On 5^th March 2019, NMC Health announced the signing and finalisation of definitive agreement for the formation of a joint venture with Hassana Investment Company, the investment arm of the General Organization for Social Insurance (GOSI) in Saudi Arabia. After the finalisation of the agreement, NMC Health will own a 52% stake in the JV, while GOSI will own the balance through a wholly owned subsidiary. The JV contains NMC’s involvement of its five assets in Saudi Arabia country and an additional cash injection at closing. GOSI’s contribution includes a 38.9% stake in CARE.

Key Risk
The only risks in the healthcare business include the ability to recruit and retain quality medical staff, increasing competition, adverse regulatory changes, integration of acquired assets, expansion into new geographies and business segments, and the non-renewal of lease agreements of key hospitals.

Valuation Methodology

(Note: All forecasted figures and peers have been taken from Thomson Reuters. Currency exchange rate taken for 1 USD = 0.76 GBP)

Conclusion
NMC continues to be a strong growth story driven by a mix of organic initiatives and aggressive M&A activity. The company delivered on all fronts with strong organic revenue growth, EBITDA performance, cash flow generation, and finalization of the JV with Hassana in Saudi Arabia. It also reiterated its guidance of 22-24% revenue growth and 18-20% EBITDA growth for FY19. Management's target to expand aggressively in Saudi Arabia and the IVF business are the two main growth drivers for the company. The group has projected 3 per cent of total revenue as maintenance capex and US$100 million for growth capex. As for leverage, management aims at reducing Net Debt/EBITDA to 2.2-2.4x at the end of FY19 vs 3.1x in FY18. The company through both organic and inorganic means can identify new potential markets. Based on the strong growth prospects of the company and the valuation done using the above method, we have given a “BUY” recommendation at the closing price of GBX 2,416.00 (as on 3^rd April 2019) with single-digit upside potential based on 19.93x NTM Price/Earnings (approx.) on FY19E earnings per share (approx.).
 
*The buy recommendation is also valid for the current price as covered in the report (as on Apr-04-19).
 

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