IDHC LN | A jackpot of free cash flow; Maintain Overweight
Exceptional free cash in 2021e. Driven by stronger-than-expected COVID-19 testing, we raise our 2021 forecasts which now imply phenomenal 2H21e EBITDA growth of c49 % y-o-y. Our 2021 estimates stand in line with management’s latest guidance of c80% top line growth, with c50% EBITDA margin (vs. 44% in 2020). Thanks to the cash-generative nature of IDH’s model, we foresee free cash flow at cEGP1.4bn this year, effectively what was generated cumulatively over 2017-20, indicating a FCFE margin of 29% and yield of c12%. We reiterate our OW call on the stock, with 12M TPs of USD1.80/share (upside of 49.6%) and EGP29.0/share. The EGX listing offers 12pp higher upside of 61.8%.
Expect a bumper dividend. IDH’s radiology branch expansion in Egypt is continuing, but capex should not restrict the potential for a windfall dividend, due to COVID-19 revenue stream being highly instrumental, at 48% of 1H21 revenue. We expect a bumper 2021 dividend (DPO of 120%), implying an attractive yield of 11.7% for LSE and a higher 12.5% for EGX shareholders (distributed in USD for both listings).
Compelling valuation, even beyond 2021. Egypt is behind by EM standards, with only c5% of the population fully vaccinated. While local vaccine production could help achieve the government’s year-end target of a 50% vaccination rate, COVID-19 cases in September are 5x higher y-o-y, supporting a strong 2H21e. We eye a more gradual phase-out of COVID-19 testing over 2022-23, leading to a 2021-23 EPS CAGR of -14%, while trading on 2022 and 2023 P/E multiples of 11.7x and 12.6x, respectively vs. the three-year historical forward average of 16x.
Watch radiology in Egypt, turnaround in Nigeria. COVID-19 has dwarfed other areas in IDH’s focus, but these may prove key in softening the impact of, eventually, fading pandemic-related revenue. These include: i) house call services, customer loyalty programme, and Wayak (Egypt subsidiary investing in data mining and artificial intelligence), ii) expansion of radiology in the core Egyptian market (third branch inaugurated in September, and three more in 2022), iii) turnaround in Nigeria, with 1.7x revenue growth in 1H21, branch additions of eight p.a. and a target to breakeven by year-end, and v) entry into new markets (not in our numbers).
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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