top-line growth accelerating, pathway to better profitability visible

Although MedLife’s 2Q17 earnings missed our expectations on higher personnel and rental costs, revenue growth remained strong – 31% yoy on a reported basis and in excess of 15% like-for-like. We are still waiting for the pro forma 1H17 numbers for some additional granularity but, simply on a qoq basis, or vs. the FY16 numbers, we can see that the two key segments – Clinics and Dentistry – are delivering strong growth in average fees (Hospitals were positive, but less so; Labs and Corporate were diluted by moves into the value segment, but volumes growth was strong). During the conference call, management indicated that the growth of personnel and rental costs should moderate in 2H17E, and that its cost relocation plan (shifting head office costs in favour of shareholders vs. minorities) is on track for the start of next year. We still feel comfortable with our 2018-19E estimates, with the EV/EBITDA multiples dropping to 10x and 9x, respectively (from 16x this year), which still put the stock on a c.10-15% discount to EMEA peers (GHG, after its recent correction, is trading at 11x 2018E EV/EBITDA and 9x in 2019E, on our estimates).