SPMD EY | Cut to Neutral, as stock factors visible growth and dilution risk looms
Raise TP by c8% to EGP2.50/share. We widen 2021-26e EBITDA by 12%, on: i) an increased number of tests, on two new government-level contracts, ii) a 75-bed expansion at Obour Hospital to 140 beds, and iii) lower earnings from Nile Scan, on slower-than-anticipated progress. SPMD currently trades on P/Es of 15x for 2022e and 11x for 2023e (Egypt peers at 14x and 12x, respectively), warranting our Neutral call, ahead of the imminent Prime Speed acquisition, which we see as 28% dilutive.
Key downside: Prime Speed buyout. SPMD looks to acquire the remaining 70% stake in Prime Speed, which if passed by the EGM (no announced date), based on Prime Speed’s IFA value of EGP1.0bn and SPMD’s market cap, would dilute our base case by EGP0.71/share. The deal emerged when Prime Speed (operates nine drive-thru outlets) secured exclusive agency rights to distribute Sputnik V in Egypt, with 30mn doses slated for the first phase over 2021-22. Management deemed this the primary justification for the acquisition.
New contracts sustain lab traffic. SPMD secured pre-employment lab testing for nationals travelling to Libya (avg. revenue of EGP138/test) and PCR testing for Umrah pilgrims (on an exclusive basis for one season) via two contracts. Accordingly, we model 36% higher lab revenue (EGP770mn) over 2021-26e. Although we see a plunge in pilgrims to 200-300k p.a. in 2022 vs. 542k in 2019, on COVID-19 restrictions, this remains meaningful for SPMD’s traffic.
Possible valuation upgrade triggers. We flag the following deals as potentially value accretive to our base case: i) the importation of 30mn doses of the Sputnik V at a before-tax fee of USD0.48/dose (+5%), ii) the acquisition of a 50% stake in Al-Safwa Hospital (+3%), among other initiatives (Speed Finance and Digital Wellnez), and iii) higher-than-factored number of tests from the newly-signed contracts.
Speed Medical S.A.E. Speed Medical SAE is an Egypt-based medical laboratory operator. The Company is engaged in establishing, operating and managing diagnostic laboratories, clinics and hospitals. It operates four branches across Egypt.
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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