NMC in rude health as Gulf operator moves further afield

NMC Health plumped its earnings 30% in the first half of the year as the Gulf private healthcare operator's margins accelerated faster than revenues, boosted by acquisitions of a cosmetic surgery business and a chronic care specialist.

Management said the financial and operational performance in the half-year was in line with expectations, with a "positive outlook" for the rest of 2018 as margins strengthen and $200m worth of new acquisitions offering the potential for guidance to be upgraded.

Revenues of $932m were generated in the six months to 30 June, up 20.2% on the same period last year, with organic growth accounting for 13.4% of this growth.

The healthcare division, which operates hospitals and specialist clinics from NMC's United Arab Emirates base and across 15 nearby countries, grew revenues 25.8% to $706.0m and EBITDA by 34.0% to $226.8m as EBITDA margins widened 190bps to 32.1%.

Patient numbers increased 19.7% to 3.4m in the half compared to the same period last year as operational beds increased 36% to 1,530 helped by the ramp-up of what will be NMC's largest hospital, NMC Royal Hospital in Khalifa City, Abu Dhabi. Further growth is eyed from the agreed joint venture in Saudi Arabia with Hassana Investment Company once it is completed.

This was surgically augmented by the acquisition of a 70% stake in CosmeSurge, the only institutionalised cosmetics business in the Gulf region, as well as the acquisition of Chronic Care Specialist Medical Centre and outstanding minority stakes across several subsidies, particularly Fakih In Vitro Fertilisation. Management plan to rapidly expand CosmeSurge's clinics alongside NMC's existing healthcare network, which is expected to "substantially" boost its growth and margins.

Other augmentations have been made outside the Middle East, including a contract to operate and manage two hospitals in Kenya, the opening of an IVF clinic in Nairobi, acquisitions of IVF clinics in Sweden and Latvia.

NMC has also entered the UK via the £10m purchase of Aspen Healthcare, which operates four private hospitals and five clinics. Aspen, which operates the Parkside Hospital, The Holly Private Hospital and Highgate Hospital in London, will be used as a platform for a new IVF business, but the group does not currently intend to acquire any other UK hospital business.

Back in the Gulf, NMC's smaller distribution division, which is a wholesaler of pharmaceutical goods, medical equipment, cosmetics and food, increased revenue 8.4% to $255.0m, alongside an improved EBITDA margin of 11.9%.

For the group as a whole, margins increased by 220 basis points to 24.2%, enabling earnings before interest, tax, depreciation and amortisation to surge 32.1% to $225.5m. Earnings per share were increased 30.8% to $0.561 and adjusted EPS by 30.2% to $0.669.

No interim dividend was declared but a final dividend was indicated, in line with the policy to target a payout ratio of 20-30% of profit after tax.

Chief executive Prasanth Manghat said: "The benefits of scale, our mix of healthcare verticals and cross utilisation of assets and business streams is now starting to be reflected through enhanced revenue and improved efficiencies and margins."

Backed by a strong balance sheet, which was boosted by April's $450m convertible bond, Manghat said he saw "continuing good growth potential across different parts of the group in 2019 and beyond and remain confident in the long-term prospects of the business".

In light of the demand for the group's healthcare services, the ramp-up at key locations and bolt-on acquisitions, Manghat and his board colleagues are in the process of reviewing full year guidance, which had indicated 22% revenue growth and EBITDA around $465m, and said they would provide an update expected to be provided at the capital markets day in London on 22 October.

NMC shares rose more than 7% to an all-time high of 4,376p in early trading on Monday, but came back to 4,262p as noon approached.

Analysts at Berenberg said it was an "impressive" set of results, calculating that around $200m has been spent on new acquisitions, to lift its own EBITDA forecasts 1.6% in 2018 and 3.4% in 2019.

Looking at the healthcare division, the common theme across all verticals, a "meaningful increase in revenue per patient" of 8-14%, while distribution margins "materially" exceeded forecasts, offsetting a step up in central costs.

"In the UAE, Dubai growth is sufficiently strong that NMC is considering new greenfield and brownfield developments. Oman is similarly benefiting from mandatory insurance, and further investment is being considered in the country. Kenya is the first step into Africa for the IVF business, with a greenfield site, and the company has also won an operation and maintenance contract."