NMC Health Plc (NMC)

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 owns and manages 135 (approximately) healthcare facilities which include hospitals, surgery centres, fertility centres and medical centres. As on April 05, 2012, its shares were admitted to the main market of the London Stock Exchange.

Financial Highlights: H1 FY19 (USD Million)

Source: Company filing.

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

Stock Performance
 
Daily Price Chart (as on October 22, 2019), before the market close. (Source: Thomson Reuters).

At the time of writing (before the market close at 01:55 PM GMT),shares of the NMC were quoting at GBX 2,629.0 and added 23 points or 0.86% against the previous traded level. In the year-ago period, it shares have registered a 52w high of GBX 3,764.0 and a 52w low of GBX 1,773.50, respectively.

Conclusion
In the past eight quarters, the group's revenue surged with a compounded average growth rate of 12% to US$1,236.0m from US$487.1m reported eight quarters before. During the same time period, gross profit of the healthcare group surged with a CAGR of 16% to US$544.6m from US$167.3m, and Net Income grew with a CAGR of 16% to US$138.1m.

Also, during the H1FY19, the group's performance was decent, with 32.6% growth reported in the total revenue and EBITDA expanded by 22.5% (both Pre-IFRS 16), respectively. And the group's performance in the second half of the FY19 is expected to be in line with the management's expectations.

However, at the current trading level as highlighted in the price chart, shares of the company were trading well above its long-term support level of 200-day simple moving average. However, the short-term trend in the stock is moderate as its shares were quoting below the short-term 20-day and 30-day SMA and 14-Relative Strength Index in the stock is down-trending but oscillating in the normal zone.

Therefore, based on the above rationale, we have given a “Hold” recommendation at the closing price of GBX 2,606 (as on 21^st October 2019).

Smith & Nephew Plc (SN)

Smith & Nephew Plc (SN) develops medical technology devices. The company is engaged in endoscopy, orthopaedics, and advanced wound management. The company’s services and products comprise AET (Arthroscopic Enabling Technologies), Knee Implants, Advanced Wound Bioactives, Trauma & Extremities, Sports Medicine Joint Repair, Advanced Wound Devices, Advanced Wound Care, Hip Implants, and Other Surgical Businesses.

Recent Development
In the exchange filing made by the company as on October 21, 2019, the group reported that its Chief Executive Officer (CEO) decided to step down from the Board by mutual agreement as on October 31, 2019, to grab opportunities outside the UK.

It also reported that Roland Diggelmann had been appointed for the CEO position and he will resume the CEO’s office as on November 01, 2019, respectively.

Interim Dividend Announcement
As the group announced earlier on July 31, 2019, the group reported that interim dividend for 2019 of 14.4 cents (11.19 pence) would be paid to the respective shareholders as on October 30, 2019.

Interim Results – H1 ended 29^th June 2019 ($ mn)

Source: Company filing.

As on July 31, 2019, the Health Care Equipment group company reported its Q2 and H1 FY19 results for the period ended June 29, 2019. In the second quarter of 2019, the group's revenue grew by 3.1% to US$ 1,283m, and in the first half of 2019, the group's revenue improved just 1.8% to US$ 2,485m (on a reported basis). However, on a trading basis, the group's revenue surged by 3.5% to $1,283m in the Q2FY19 and up by 3.9% to US$ 2,485m in the H1 FY19. It was largely supported by growth it witnessed in the Emerging Markets and China.

Trading Operating profit in the H1FY19 improved to US$532m from US$507m recorded in the year-over period, and Earnings per share (EPS) increased to 45.8c from 43.7c reported in the year-over period. Also, the trading profit margin in the H1 FY19 expanded by 60bps to 21.4% and operating profit margin improved 150bps to 16.8%.

Conclusion
In the past eight trailing quarters, the group’s revenue increased with a CAGR of 1% and gross profit improved by just 0.4% in the same period. However, Operating Income and Net Income in the same period surged with a CAGR of 10.5% and 13.2% respectively. However, the group’s reported EBITDA margin stood at 28.9% whereas the industry average stood at 22.1% and Net Margin stood at 12.4% against the industry average of 9.5%.
But, the current technical trend in the stock is down-trending, as its shares were quoting well below its 200-day and 50-day simple moving average prices and MACD is falling, with 12-day EMA quoting below the 26-day EMA, respectively.

Therefore, based on the above rationale, we have given a “Watch” recommendation at the current price of GBX 1,694 (as on October 22, 2019, before the market closed), while we look for any upcoming catalysts in the near term.

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