NMC rises on investment rumours

Investors will be grateful, then, to see the shares leap more than a quarter on the morning of the half-year results, following reports from Reuters that two buyers - one backed by Chinese conglomerate Fosun - had made competing offers to buy a 40 per cent stake in the healthcare group from KBBO Group. NMC did not respond to a request for comment.

But is this spike a blip, or the sign of a turnaround? Certainly, improved operational performance is reflected in a substantial reduction in the duration of working capital, underpinning a 23 per cent increase in free cash flow to $77.8m (£64.3m), while cash profits were up 22.5 per cent to $276m.  

From a clinical perspective, NMC treated around 4m patients in the first six months of 2019, up 16.7 per cent year on year. But expansion requires new capacity, and NMC added 392 beds year on year. Naturally, not all these beds are filled immediately, so the lag resulted in a 220 basis point drop in occupancy over the period to 67.7 per cent. Another 385 new beds are being added across Dubai and Sharjah, so a further contraction in occupancy rates might be unavoidable.

Management has backed off from major acquisitions to focus on integration. With cash flows improving, the switch should help to narrow overall borrowing. Net debt stood at at 3.4 times cash profits, still relatively steep, albeit at the bottom end of guidance. The cost of meeting obligations under the group’s convertible bond and sukuk (sharia-compliant bond), which only came into play recently, have increased overall financing costs.

The group took advantage of the depressed share price to propose a share buyback of up to $200m (£162m), which management said would be carried out opportunistically so it could take advantage of “very attractive investment opportunities”.

Bloomberg-compiled consensus is for adjusted EPS of 154¢ for 2019, up from 133¢ last year.