Integrated Diagnostics Holdings PLC

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. Presently, the company is having more than 400 branches and is looking to expand its portfolio through its Spike, Spoke and Hub business model.

Recent News
On 20^th December 2019, the company announced the appointment of Panmure Gordon (UK) Limited and Investec Bank plc as a joint corporate broker.

Financial Highlights (for the first nine months of 2019)
For the nine months period ending 30th September 2019, driven by decent 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 margin stood at 48 per cent for the period. The EBITDA margin increased to 42 per cent for 9M FY2019 from 39 per cent 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 Bottom-line profitability declined due to higher interest expenses for financing Al Borg Scan's expansion and new headquarters. The company’s cash flow (net) from operations was reported at EGP 442 million for 9M FY2019.

The company in Sudan opened 32 new branches and shut down 4 non-performing branches. The company renovated eight branches and inaugurated a new branch in October 2019 in Nigeria as a part of an expansion plan. The company witnessed decent 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.

Share Price Performance
 
Daily Chart as at January-31-20, before the market closed (Source: Thomson Reuters)

Integrated Diagnostics Holdings PLC shares were trading at GBX 4.49 at the time of writing before the market close (at 1:13 PM GMT) on 31st January 2020 and were up by 1.35% versus the previous day closing price. Stock 52 weeks High and Low are GBX 5.20/GBX 3.75. The group’s stock is reflecting the lower volatility as against the benchmark index based on the company’s beta of 0.0132.

The shares of the company have delivered a negative return of 3.96 per cent in the last three months. The shares of the company have delivered a negative return of 11.96 per cent in the last six months.

Conclusion
On the liquidity front, Integrated Diagnostics Holdings Plc’s current ratio was lower than the industry median of 1.06, reflecting insufficient current assets to pay its short-term obligations. 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).

However, the group is substantially exposed to the volatility in the medical equipment and services prices, as recent fall in the Healthcare sector impacted the performance of its shares as well.The sector is increasing fears over the potential effect from the coronavirus spreading from China. The company doesn’t have any equipment and services for this virus, that would partially impact the company’s performance.

The company’s operations, like its peers, are impacted by the uncertainty created due to future medical equipment prices.The geopolitical and economic uncertainties in the UK and US as well as abroad has caused substantial volatility in the current market scenario.

Presently, the company is trading near the 52-week mid, raising doubts at its upside potential at the current price level. The company’s trailing 12 months Price to Cash Flow and EV/Sales multiple are significantly higher as compared to the trailing 12 months industry multiple, reflecting overstretched valuations.

Based on the above rationale and risk associated with the company, we have given a “Sell” recommendation at the current price of GBX 4.49 (as on 31^st January 2020, before the market close).

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