IDHC LN | Uninterrupted growth story; Reiterate Overweight
Reiterate Overweight, on 12% higher TP. We up our TP for IDH to USD1.40/share, following a c12% upward revision in our EBITDA estimates across our forecast horizon, on higher base in 2020 following the COVID-19 testing windfall. The stock has gained c22% since our buy call on 15 Dec-20, and we believe there remains room for further upside, with IDH trading on a 14.4x 2021e P/E, c24% below its five-year historical average. Strong earnings momentum, the dividends announcement, and upcoming listing on the EGX should act as catalysts for the stock.
COVID-19 testing: 2020, 2021 main growth driver. After recording a 10% y-o-y decline in 1H20 revenues, a surge in COVID-19 testing in 2H20 has led to a c46% boom in 2H20 revenues, leading to a 19% rise in 2020e revenues, on our numbers. COVID-19 testing contributed to c20% and c40% in 3Q20 and 4Q20 revenues, respectively. 4Q20 revenues are expected to land at EGP980mn, up 70% y-o-y, leading to a record high bottom line of EGP252mn, a trend we see extending to 1Q21e, leading to 15% and 19% increases in 2021 revenues and earnings, respectively, with the effect of COVID-19 gradually phasing out over the year.
Strong market positioning, further expansion to support 2022e growth onwards. IDH’s strong market positioning enables the Group to increase its pricing list by 8-10% p.a., while annually expanding its reach, leading to a 5-7% annual increase in the number of tests. Our adjusted 2019-22e revenue per test and number of tests CAGRs stand at 11% and 5%, respectively, coming broadly in line with the Group’s sustainable level. We foresee 30-34 lab additions p.a., nine of which will be in Nigeria starting 2022e, translating into a 7.7% capex/sales ratio over 2021-23e.
Key triggers: Dividends announcement, EGX listing. IDH enjoys one of the strongest BS within our healthcare coverage, with a EGP304mn net cash position, as of 3Q20, which, when coupled with a sustainable FCFF margin of c21%, supports a 90-100% payout ratio, translating into a 2020e DPS of USD0.06, yielding 5.0%. On 22 March, IDH received the FRA registration approval to pursue a technical listing of a minimum of 5% free float on the EGX, and is now in the process of obtaining remaining approvals to commence trading before end-1H21.
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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