MedLife: a lot on its plate to digest (stays HOLD)

We maintain our HOLD rating on MedLife, with an updated price target (PT) of RON 21.7/share, or upside of 13%. We expect 2023 to be a year of consolidation – MedLife announced a record 13 deals last year – and deleveraging. We have seen this before: management acquires businesses (typically) with margins several percent below its own but, because of the group’s scale, can raise them over the course of several quarters. This is implicit in our modelling, as we expect a “mirror image” of 2022E: depressed margins in 4Q22E and 1Q23E, but trending higher through to end-2023E and 2024E. FCF should turn positive, kicking off a new deleveraging cycle, gathering speed in 2024E. However, until then, in the new rate environment, interest costs will weigh heavily on the net profit: we see a c.90% yoy increase next year, and net profit not topping the 2021 peak until 2025E. In the meantime, the multiplies look demanding and the ROCE underwhelming, notwithstanding our positive mid-term growth outlook.