WOOD Flash – Georgia Healthcare Group: earnings better, but core healthcare business can still improve

Yesterday (15 August), GHG reported its 2Q18 results, which were broadly in line with the consensus estimates. Earnings were driven primarily by the strong performance of the Pharmacies segment, and by a recovery in the Insurance business, to a lesser extent, but the core Healthcare was underwhelming on lower bed utilisation and flat like-for-like revenues growth at mature hospitals. After the quarter, looking at our FY18E estimates, we expect full-year EBITDA of GEL 131m, or c.2% lower than the GEL 134m in our May update (although still implying yoy growth of c.21%). We agree with management that 2Q18 was probably the bottom for Healthcare earnings, that we should see a strong contribution from the new hospitals going forward, and we expect positive FCF generation and deleveraging as the capex cycle of the past four years winds down. This said, on an EV/EBITDA closer to c.11x, the stock offers no discount to the median of our EMEA peer (10.5x) on 2018E earnings, currently. We remain BUYers of the story, but investors, we believe, will need another one-to-two quarters of convincing growth before pricing in the company’s full earnings potential for the coming years.