Mediclinic | Aim high, miss low?

Over the past two years, Mediclinic (MEI) has been negatively affected by rising regulation in Switzerland, which has hampered profitability, and poorly executed diversification into the Middle-East. MEI's H1'20 results indicate no reprieve from these pressures. MEI needs to optimise their business in Switzerland to cater for out-patient treatment and more effective tie-ups with university hospitals. However, the Zurich canton accounts for c.70% of the Swiss unit's revenues where regulation is particularly onerous. By comparison, peer Swiss Medical Network has only two healthcare facilities located in Zurich and accordingly has a higher EBITDA margin of c.19% compared to MEI's Swiss margins of c.15%. The results illustrate that MEI's Swiss business model is struggling to transform itself.



We estimate that the counter is trading at a 13.98x rolled forward PE (1.3x PE relative). Our combined DCF, EV/EBITDA and P/E valuation methodology deliver a one-year target price of R84.36/share, implying a total return of 18.5%. The total return is 2.8% greater than our estimated market return of 15.7%. Accordingly, we downgrade our rating from an OUTPERFORM to a MARKET PERFORM rating.