IDHC LN | Strong beat during pandemic warrants an upgrade
Upgrade TP to USD4.43/share, turn buyers. A stronger-than-expected set of 2Q20 results led to an upward revision of our revenue evolution estimates (on higher revenue/test), hiking our 12M TP by 8% to USD4.43/share, offering a 20% upside and warranting an Overweight rating. IDH trades on a 2021e P/E of 15.3x, in line with the stock’s historical average, while offering a 2020-22e EPS CAGR of c20% and a 2020e dividend yield of c6%. Further upside from M&A activity is on the table, backed by a healthy BS (2Q20 net cash to EBITDA ratio at 0.8x).
1H20 results highlight industry’s defensive nature. Despite the number of tests taken in 1H20 sliding 28% y-o-y, alongside an 8% drop in the number of tests/patient, a 24% y-o-y rise in revenue/test resulted in an only 10% cut in revenues. Jun-20 revenues witnessed a sharp 38% y-o-y surge (vs. 49% and 22% drop in April and May revenues, respectively), chiefly boosted by the ramp up of IDH’s house calls service in Egypt, as well as the increasing demand for COVID-19 indicative test bundles. Lower raw material costs, and lower wages and salaries during the period have enabled IDH to surprisingly deliver an intact 47% gross margin.
2Q20 beat sets new base for revenue evolution. We were positively surprised by 2Q20 results, especially on the pricing front (average revenue/test came 8% ahead of our estimate) and margins. The former warranted a 5% upward revision in our 2020-onwards estimates, supported by higher pricing COVID-19 related tests. This, along with c4ppt higher than previously expected 2020 margins led to 18% and 28% upward revisions to our 2020 EBITDA and net income estimates, seen landing at EGP913mn and EGP489mn, respectively. We up our 2021-onwards EBITDA estimates by c5%, following the upward revision in revenue/test.
Risks skewed to upside. Now that 2Q20 trough is behind us, we view IDH’s risk profile as more skewed to the upside. A stronger -than-expected rebound in the number of tests, coming from the higher pricing COVID-19 related tests, represents the major upside risk to our numbers, with every 100k higher-than-expected number of patients adding c5% to our TP, all else constant. Value accretive acquisition, backed by a strong, liquid BS (1H20 net cash/EBITDA of 0.8x) is another major upside risk, in our view.
Integrated Diagnostic Holding is a holding company fully integrated private sector provider of diagnostics services in Egypt, backed by an internationally accredited diagnostics service portfolio of over 1,000 diagnostic tests, a footprint spanning 354 branch labs as of Dec 31 2016. Co.'s core brands include Al Borg and Al Mokhtabar in Egypt, as well as Biolab in Jordan and Ultralab and Al Mokhtabar Sudan in Sudan. Co. also operates the Medical Genetics Centre brand in Egypt. Co. offers more than 1,000 diagnostic tests, ranging from basic tests (such as glucose testing for diabetes) to molecular tests for hepatitis and highly specialized DNA tests.
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.
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