WOOD Flash – MedLife: 2Q18 price hikes add to the case for margin expansion

The main takeaways from MedLife’s 2Q18 conference call, in our view, were an average 10% hike in prices (not reflected in our model) and the outlook for materially lower FY18E capex than we have included in our model (we had assumed RON 127m for this year: the 1H18 figure was RON 38.1m and should be lower in the second half). The first should, at least in part, offset MedLife’s higher wage costs, and both should strengthen the balance sheet (Net debt/EBITDA at end-1H18 had moved back up to 3.9x vs. 2.7x at end-2017). Moreover, management is negotiating with banks for a 25-50bp cut in its interest costs (again not reflected in our model).
Following the 2Q18 results, we believe our FY18 EBITDA target of RON 98.7m may be too aggressive, but only in the order of c.10%. Our revenues for 2019-20E may be too conservative: our 2018-20E revenue CAGR of 11.6% is driven c.70% by volumes and only 30% by price, so there would be material upside from the higher 2018E price base. We see the stock trading on a 2018E EV/EBITDA of c.10.8x, or a c.10% discount to the median of our sector peers (growing to 25-30% in 2019-20E), and a clear path to margin expansion from 2H18E-onwards. We reiterate our BUY on the stock.