Long-awaited M&A close to see the light
Epic organic margins and M&A inclusion warrant an upgrade. We raise our TP by 33% to EGP8.00/share, as we: i) raise 2019-23e organic EBITDA by 13% p.a., on an improved margin outlook, and ii) incorporate El Katib and Queens hospitals in our numbers (6% of TP). CHG remains our preferred name within the healthcare space in Egypt, given its value added services, pricing, and high operating leverage. CHG is set to exhibit a robust 2019-21e EBITDA CAGR of 29%, driven by solid organic growth (+24%) and acquisitions. We expect EBITDA margin of 25.7% in 2019, implying minor margin erosion (-40bps y-o-y), reflecting higher opex related to polyclinics and the soon-to-be acquired hospitals’ subpar margins vs. CHG. The stock trades on a 2019e P/E of 25x vs. peers’ 26x. A premium is warranted, in our view, given CHG’s superior EPS growth (3yr CAGR of 31%) and returns (+20% RoE).
Deals’ conclusion imminent. CHG expects Queens Hospital to contribute to the Group by 2Q19. CHG acquired El Katib Hospital’s real estate assets, and is finalising the business transfer agreement. We incorporate the two hospitals in our numbers, starting 2H19, and assume an acquisition multiple of c10x EBITDA for the assets, based on management’s earlier guidance of c8-10x. Queens and El Katib will add 50 and 100 beds, respectively, boosting capacity by 26%. We expect the two assets to add EGP74mn to EBITDA in 2020, factoring improvement in their blended EBITDA margin to c23.0% from c21.4% in 2018e, on synergies.
Widening scope for growth. The first polyclinic was launched in Feb-19 in East Cairo, with plans to launch a second polyclinic in 2Q19 in West Cairo. We assume CHG will add 10 polyclinics by 2023 (+2 p.a., in line with management’s guidance), generating c7% of the top line by 2023e. CHG also plans to offer additional specialities at Queens Hospital, after obtaining the necessary regulatory approvals. El Katib will also expand CHG’s services to add a new urology centre of excellence.
Cleopatra Hospital SAE is an Egypt-based hospital, which provides health and medical services, as well as the medical care of inpatients. The Company holds stakes in four hospitals in the Greater Cairo Area: Cleopatra Hospital, Cairo Specialized Hospital, Nile Badrawi Hospital and Al Shorouk Hospital, offering a full array of general and emergency healthcare services. Its service offerings include general surgery, emergency and ambulance services, cardiology, gynecology and obstetrics, oncology, orthopedics and a number of outpatient clinics, including dental, physiotherapy and primary care. The Company's facilities allow to conduct routine examinations, simple procedures and operations, and general services such as pharmacy, blood bank and diagnostic services.
CI Capital is a diversified financial services group and Egypt’s leading provider of leasing, microfinance, and investment banking products and services.
Through its headquarters in Cairo and presence in New York and Dubai, CI Capital offers a wide range of financial solutions to a diversified client base that include global and regional institutions and family offices, large corporates, SMEs, and high net worth and individual investors.
CI Capital leverages its full-fledged investment banking platform to provide market leading capital raising and M&A advisory, asset management, securities brokerage, custody and research. Through its subsidiary Corplease, CI Capital offers comprehensive leasing solutions, including finance and operating leases, and sale and leaseback, serving a wide range of corporate clients and SMEs. In addition, CI Capital offers microfinance lending through Egypt’s first licensed MFI, Reefy.
The Group has over 1,700 employees, led by a team of professionals who are among the most experienced in the industry, with complementary backgrounds and skill sets and a deep understanding of local market dynamics.
CI Capital has been recognized as the “Best Investment Bank in Egypt” by EMEA Finance for four years running from 2013-2016, and by Global Finance in 2014 and 2015.
Unfortunately, this report is not available for the investor type or country you selected.
Browse all ResearchPool reportsReport is subscription only.
Thank you, your report is ready.
Thank you, your report is ready.