EUR 30.89 For Business Accounts Only

IDHC LN | A high quality, defensive name to own in 2021

Reiterate OW rating, on 13% higher TP. Our call on IDH, Egypt’s largest diagnostic services provider, comes with a USD5.00/share TP, offering c35% upside to the last closing price. We raise our TP by 13%, as we roll-over our DCF, while increasing our average revenue and EBITDA estimates by 4% and 6%, respectively, on higher pricing. IDH trades on a 2021e P/E of c14x, a c33% discount to regional peers, while offering a 2020-22e EPS CAGR of 17%. IDH is a dividend play, with a 100% payout ratio, leading to a 2020e and 2021e DPS of USD0.24 and USD0.27, respectively, yielding 6.6% and 7.2%.

COVID-19 testing boosts IDH revenues, margins. COVID-19 related testing represents 14% of IDH’s 9M20 revenues, which, thanks to its higher pricing, led to a decent 43% EBITDA margin booked over the period despite the mere 1% rise in revenues. This was supported by a 25% y-o-y rise in average revenue/test, which more than offset the 19% drop in the number of tests, dragged by the drop in traffic over 1H20. Despite being the reason behind the hit in traffic over 1H20, COVID-19 played a positive role in promoting healthcare awareness, boosting IDH’s house calls, and widening the Group’s clientele. The latter should bode well in a post COVID-19 era. 

Higher traffic, increase in pricing to secure revenue growth in 2021e, onwards. We look for a 2021e revenue growth of 14%, driven by 9% and 4% rises in the number of tests and average revenue/test, respectively. Our model accounts for a 2022-25e revenue CAGR of c15%, underpinned by a mix of 7% and 8% increases in volumes and pricing, respectively. We opt to smooth the growth expected in 2021e pricing, to account for the favourable base effect, boosted by COVID-19 related tests contribution in 2020. We note that our 2019-21e revenue/test CAGR stands at 9%, excluding the 100mn Healthy Lives campaign in 2019, in line with the Group’s annual price increase.

Solid market positioning, with risks skewed to the upside. We like IDH’s defensive nature, which, despite the pandemic, is seen delivering a 9% rise in 2020e bottom line, while maintaining a healthy, solid, BS. Higher-than-expected COVID-19 related testing, on: i) an extended second wave, ii) higher demand for travel certificates, or iii) new partnerships with private or governmental entities, represents the major upside risk to our numbers. Any potential cap on pricing from the government is seen as the only downside risk, which we believe is highly unlikely.