2021 shaped a record year for IDH
IDHC is on track to achieve a record year in 2021, with revenues almost doubling in 9M21 recording around EGP3.8 billion and net profit almost tripling to stand at EGP1.1 bn, with the highest ever revenues, EBITDA and net profit recorded in the third quarter; driven by covid and non-covid testing. During 9M21, IDHC conducted around 25 million tests (+33% YoY), serving 7.5 mn patients (+56% YoY) through a network of 507 branches. Strong performance was primarily driven my covid-related revenues, contributing 50% of 9M21 revenues, along with a witnessed solid recovery in non-covid revenues. During 9M21, conventional business volumes have grew to surpass 9M19 levels by 3%. IDHC has reduced its PCR pricing between December 2021 and January 2022, in line with the market moving to lower PCR testing pricing.
During 2021, IDHC continued to expand its branches network and opened 2 radiology labs, to reach a total of 4 radiology labs. IDHC’s home service has been a success, contributing around 20% of the consolidated revenues, serving more than 940k patients (+69% YoY). Also, in the response of the service increasing popularity, IDHC has expanded its capabilities on this front.
IDHC managed throughout 2021 to secure partnerships with international air carriers, regional healthcare providers such as NAS and Pure Health, in addition to revenue sharing agreements with Queen Alia International airport in Jordan, King Hussien international airport and Aqba port.
Nigeria continued to show sustained revenue growth and narrowing EBITDA losses, supported by the company’s new management team, that should lead to EBITDA turning positive early this year.
Sudan continued to be impacted by the devaluation of the pound and mounting political and social instabilities, however, the contribution of the country is very small.
On track to meet 2021 guidance:
Revenues of EGP4.5-5.0 bn (growth of more than 80% YoY),
EBITDA margin of 50%.
Outlook for 2022
IDHC is committed to growing at the same pace along with opening 30-35 branches per year and expanding further in the radiology business through adding at least 3 radiology labs this year (this brings the total number of radiology labs to 7 labs).
The consolidation of IDC (Pakistan) will act as a key revenue driver for IDHC in 2022, contributing 15% of overall performance, acting as a hedge against the expected normalization of revenues in case covid-related revenues started to slow down.
Another key trigger for revenues in 2022 is the growth in both conventional and covid testing. Demand for covid-related testing is taking different forms throughout the year, either driven by strong demand for testing or travel-related testing.
IDHC expects to sustain the walk-in (40%) compared to corporate (60%) revenue contribution.
IDHC will continue to increase prices annually for walk-in patients by around 10% and 5-7% for corporate patients, bringing a blended increase in pricing to around 7.5%.
Management expects normal opex levels with no expected spikes in costs taking place so far.
Capex within normal levels, favorable working capital dynamics
IDHC plans to open from 3-4 new radiology labs this year and from 30-35 new branches. The company is guiding for the usual capex spending that should represent around 6% of sales.
The company enjoys favorable working capital dynamics and CF structure, given that almost 70% of the company’s revenues is denominated in cash. Receivables days on hand for corporate revenues stand at around 90 days. For the supplies, days on hand are fixed, with no significant changes. The company’s inventory management team that worked on pile-up PCR test given the significant demand, where testing kits in general have a shelf life of 7-9 months on average.
Islamabad Diagnostic Centre (IDC) Acquisition
IDHC signed an agreement to acquire 50% of Islamabad Diagnostic Centre for a total consideration of USD72.35 million. The remaining 50% will continue to be held by the founder. The founder has a put option to divest his remaining stake to IDH within a period of 3-5 years.
The recently announced Pakistani acquisition perfectly fits the company’s investment criteria.
IDH plans to finance the transaction through a combination of existing cash and committed debt facilities. The debt package includes the USD45.0 million facility secured from IFC in May 2021 (tenor of 8 years, 4 years grace period and an effective interest rate of 3.7%), and an additional USD15.0 million facility from Mashreq Bank (tenor of six years, two-year grace period, and effective interest rate of 3.6%). Both facilities will be paid on a semi-annual basis, with the IFC loan repayments starting from December 2025 for a fixed payment of USD5 mn, while Mashreq bank’s facility has an escalated repayment schedule that would start in 2023.
IDHC expects several synergies to arise from this transaction, mainly on the procurement front, including transfer of technology and best in class practices
Audited results for IDC’s fiscal year ended 30 June 2021 saw the company book revenues of USD46 million, up 208% YoY, driven by covid and IDC’s aggressive branch network expansion.
Similar to IDHC, IDC has a walk-in patient contribution to revenues of 45% and corporate patients of 55%. Radiology contribution to total revenues hovers around 30% of total revenues pre-covid.
IDC’s EBITDA recorded USD22.1 million in FY2021 (margin of 48.0%), conducted more than 3 million tests and served around 1.6 million patients.
Transaction should not impact dividend distribution plans for IDHC in 2022 and 2023.
The transaction is expected to close during 1H2022.
Transaction valuation translates into LTM June 2021 EV/EBITDA of 6.0x and P/E of 10.5x.
Dividend Policy Unchanged
Dividend policy unchanged: IDHC is planning not to change the usual dividends distribution policy of a 90% payout ratio. Free float of the stock is subject to transfers from LSE to EGX, currently IDHC has around 8% of the shares on listed on EGX.
IDHC is currently trading at 2022f P/E of 12.4x and EV/EBITDA of 6.3x. Consolidation of IDC should add 15-25% to our IDHC’s pre-deal estimates.