EUR 45.82 For Business Accounts Only

SPMD EY | Growth impetus on track; Maintain Overweight

Faster-than-expected growth warrants valuation upgrade. We raise our 12M TP by 105% to EGP2.32/share, to primarily reflect our 2021-26e estimates changes as follows: i) +7pp and +33pp higher revenue/test and number of tests, respectively, on a higher-than-anticipated Speed Labs’ traffic ramp-up, improving brand recognition, ii) incorporation of SPMD’s 39% stake in each of the newly established lab management company and radiology service provider, Misr Labs  and Nile Scan, respectively, and iii) higher corporate contribution to 70% (+20pp) by 2023e, as SPMD recorded 54% in 3Q20 vs. 36% in 1Q20. We raise our 2021-26e EBITDA estimates by 69%, posting an average EBITDA margin of 36%. SPMD trades on an attractive 2021e P/E of 16x, 32% below MENA healthcare peers’ 24x, unwarranted, in our view, given SPMD’s superior growth. Our model factors a 2020-22e EPS CAGR of 35% vs. peers’ 16%.   

COVID-19 testing to continue into 2021, solidifying SPMD’s corporate footprint. We expect SPMD to grow its 2021e revenue by 78% to EGP302mn, driven by higher traffic, along with muted price hikes, in response to the higher priced COVID-19 related tests in 2020 (+61pp). We look for a 2021-26e lab revenue CAGR of 35%, reflecting a blend of 26% and 7% increases in volume and price, respectively. In Feb-21, Speed Clinic is scheduled to launch its second polyclinic in Cairo, in line with our one branch p.a. estimate, leading to a total polyclinic revenue of 6% of SPMD’s revenues in 2021e. We look for SPMD to close 2020 with 91 labs, and earnings of EGP79mn, up 4.6x y-o-y, implying 4Q20e earnings of EGP30mn.  

Misr Labs and Nile Scan to sustain growth, potentially increasing competition. SPMD and Prime Speed plan to add 200 branches of Misr Labs over 2021-23e, financed internally. Misr Labs plan to target B- and below clientele, compared to Speed Lab’s C+ and above. That said, we highlight a potential price competition increase within the private lab business. Nile Scan will provide radiology services within both lab chains, Speed Labs and Misr Labs. We expect collective investment income from Misr Labs and Nile Scan to represent 15% of SPMD’s earnings over 2021-26e.

Potential Elaj partnership would give traffic boost to Speed Labs. While the Elaj MoU is still being negotiated, we highlight a full-fledged partnership would be a significant booster to Speed Labs’ traffic. Consequently, we calculate every 1k higher/lower-than-expected number of patients/lab over 2021-26e would add/remove 9% to/from our 12M TP, all else constant.