Equity Analysis /

Cleopatra Hospitals Group: Management webinar key takeaways – Well-positioned to weather the storm

  • 1Q20 Key Highlights and 2Q20 Outlook

  • Operational Updates

  • Updates on potential M&A and Capex

CLHO management believes that the number of covid-19 cases will continue to increase until June when the curve for new cases will peak and then the number of cases will start to normalize. This is about the same time when the government starts the reopening phase plans. 

  1. MoH currently asks private hospitals not to send suspect covid-19 cases to isolation hospitals directly, but to make proper CT scan and lab analysis then send the swap to the MoH. If cases test positive, they will be directed to isolation hospitals.
  2. CLHO started a campaign to ensure that the group’s hospitals are safe, by directing all suspected cases across its hospitals to Al-Katib Hospital, in order to receive MoH testing procedures over there before directing positive cases to MoH isolation hospitals.
  3. Management doesn’t believe that Egypt will end up asking private hospitals to treat Covid-19 cases. Currently the Government has 3-4 layers of hospital capacities: the quarantine hospitals, fever and chest hospitals, university hospitals, army/police hospitals. That is in addition to other facilities which are being used as quarantine facilities, but without actual ICU beds. Currently, only the quarantine hospitals are fully utilized.

1Q20 Key Highlights

  1. During 1Q20, the group is to record YoY growth in revenues of 22% YoY, supported by strong topline growth of more than 25% during the first 2 months of 1Q20.
  2. CHG is looking at solid growth with stable margins on the gross profit and EBITDA levels.
  3. The Group is set to record a YoY growth in net profit north of 50% for the quarter.

2Q20 Outlook

  1. April witnessed a big dive -most hit month- when it comes to revenues, since it was the peak of panic across patients, employees and staff.
  2. Management efforts to fight the slowdown included: reducing overtime, cutting expenses, freezing new hires, and cutting marketing expenses.
  3. As a result, the group managed to record positive margins on the gross profit and EBITDA margins levels, despite the hit in revenues.
  4. During May, CLHO started to witness an improvement in volumes MoM, but still with a YoY decline.
  5. Management expects that elective cases will come back to normal levels after Ramadan and throughout June.
  6. Receivables were not materially impacted.

Operational Updates

  1. Management initiated a campaign for a 24/7 home visits services. Group’s fleet is currently delivering all the medications for the clinic therapy, and group started a video/audio conferencing consultations.
  2. Management might take the video/audio health platform on a bigger scale some-time in the future, especially in cooperation with doctors in Europe and the US.
  3. Management believes that 1H20 results will definitely not be below last year across all levels (revenues, margins and net profit).
  4. Despite current circumstances, CHG is hoping to still achieve growth on a full-year basis.

Updates on potential M&A

  1. CHG didn’t change anything strategically, but current circumstances have delayed the progress on all fronts.

Updates on Capex

  1. Despite a solid cash position and for better cash management, CHG decided to cut capex spending from an initial guidance of EGP600 million to around EGP300 million in 2020.

*LTIP Update 

  1. LTIP (Long Term Incentive Plan) – that started in June 2016 and will expire in June 2020 – will be distributed between the executive team based on the original contract and it will never be repeated again.
  2. Management is currently working on a new plan with a different mechanism and longer in time that will probably start in July.

*LTIP - Long Term Incentive Plan – is currently a non-cash charge linked to share price appreciation and EBITDA growth.