ShareWatch
Middle Eastern health boom helps NMC map out growth
EVEN the most self-proclaimed nerds on ‘University Challenge’ would have a problem with the following question: which was the best-performing share on the London Stock Exchange last year? Quizmaster Jeremy Paxman never offers hints but if he were to say it was a Middle Eastern company, I’m still not sure the pick of the British colleges would have a breeze. In fact, it’s a company called NMC Health plc, which also managed to gate-crash the FTSE 100 in 2017. Given that this column has never before put a Middle Eastern outfit on the analyst’s couch, NMC is an excellent place to start.
It is a private hospital and distribution operator set up four decades ago in the United Arab Emirates (UAE).
Like many businesses in the geographical region, its arrival coincided with the oil boom of the 1970s. Over the years the company has increased its facilities by low risk acquisitions.
Today, the focus is on general and specialised hospitals. Its specialist services include neurology, maternity and long-term homecare. The group operates a network of more than 45 hospitals and other care facilities across eight countries and last year provided services to 5.8 million patients.
The group has also developed a distribution company, initially for medical supplies, but since expanded to other goods.
At the beginning of the century, NMC expanded beyond the Emirates and six years ago was floated on the London Stock Exchange.
The Middle East healthcare market is a growing one, helped by an increasingly affluent population in UAE and the wider Gulf region. The UAE market alone is worth €14.5bn. The introduction early last year of mandatory health insurance increased the insured population three-fold and is expected to give further impetus to growth. Its near neighbour Abu Dubai, when mandatory health was introduced a decade ago, saw demand rocket. Potential territories where healthcare is taking off include Bahrain, Egypt and Qatar.
However, the company is not the only concern to identify the Middle East as a growing one. Competitors like Mediclinic, the UK listed group, has been signalling its wish to further develop in the region.
What has made NMC a stock market favourite is clearly its dominant position in the wealthy Middle East, where healthcare is a growing focus, not just in the Emirates, but in other Gulf states including the attractive Saudi Arabian market. Recently it purchased two clinics and also agreed to fold its Saudi assets into a joint venture with the Saudi Arabian investment arm for social insurance. The group sees substantial opportunities for bolt-on acquisitions in both developed and emerging markets.
The company also operates a network of fertility clinics with seven in Europe and five in Latin America. The company has a distribution operation called NMC Trading which engages in wholesaling of medical equipment, food, cosmetics and pharma products. Trading contributes 30pc to group revenue, but only 1pc to profits. The trading arm acts for groups like Siemens, Sanofi, Pfizer and Henkel.
NMC Health has undoubtedly been a sensational investment. A glance at the graph shows an impressive upward movement of its share. Listed on the London Stock Exchange six years ago at £2 a share; it recently traded at a record £44, and a very impressive increase. Today the stock trades at £36 (€40) with an elevated price earnings of 47. This values the company at an impressive £7.6bn (€8.5bn). It helps that the shares are tightly held with only 40pc of a ‘free float’ and control is still held by the founders, who retain 24pc of the company’s stock.
The group’s revenue and profits are also striking. Revenue last year at £1.6bn is £1bn higher than four years ago. Pre-tax profits at £230m (€257m) show a three-fold increase in the same period and the near zero corporate tax is a very helpful bonus.
The group is in strong position for acquisitions and the balance sheet can support more than £1bn of purchases without the need to raise cash. This is helpful given the growth programme that the company has mapped out for itself. I’ll keep an eye out for this Middle East winner.
Nothing in this section should be taken as a recommendation, either explicit or implicit to buy any of the shares mentioned.