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NMC's growth narrative intact

The Emirates-focused health provider is in a demographic sweet spot
August 20, 2018

When we highlighted the investment case for NMC Health (NMC) back In January, we noted that the Emirates-based healthcare market was “primed for growth”. Unfortunately, a big driver of this expansion is the growing incidence of non-communicable diseases such as heart disease, stroke and diabetes. Of course, it’s not simply that the rise of so-called lifestyle diseases represents the definitive factor; demographic shifts and the introduction of mandatory health insurance are more important determinants.

IC TIP: Buy at 4,352p

But taken together, the trajectory is clear, and you get some idea where the market is headed by 2015 figures from the World Bank, which show that Saudi Arabia’s health spending as a proportion of GDP was roughly two-thirds that of the UK’s, and one-third that of the US.

NMC has identified the Saudi market as “a key strategic priority for growth”, a point borne out by the June partnership agreement with Hassana Investment (the investment arm of a Saudi Arabian government administered pension fund), with plans for the creation of the second largest healthcare platform (by bed numbers) in the Kingdom.

Acquisitions play a key part in the growth strategy, further facilitated by a $450m bond issue in April, but the group also reported that organic revenues were up 13.4 per cent during the period. Increased scale is leading to inter-group efficiencies, with cash profits a third higher at $226m (£179m) on a 220-basis point uplift in the underlying margin.

Bloomberg consensus gives pre-tax profits of $305m and adjusted EPS of 145ȼ for the December year-end, rising to $385m and 182ȼ in 2019.

NMC HEALTH (NMC)   
ORD PRICE:4,352pMARKET VALUE:£ 9.06bn
TOUCH:4,350-4,354p12-MONTH HIGH:4,376pLOW: 2,311p
DIVIDEND YIELD:0.3%PE RATIO:53
NET ASSET VALUE:563ȼ*NET DEBT:95% †
Half-year to 30 JunTurnover ($m)Pre-tax profit ($m)Earnings per share (ȼ)Dividend per share (p)
201777599.342.9nil
201893211956.1nil
% change+20+20+31-
Ex-div:-   
Payment:-   
£1 = $1.27. *Includes intangible assets of $1.51bn, or 726ȼ a share. †Does not include convertible bond liability of $381m (equal to 31 per cent of equity).