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Al Noor Hospitals Group Plc Half-Year Results Update – 17 August 2014

 

In line with expectations, Al Noor Hospitals shares have pulled back from their April highs since our last review. Following a period of sideways consolidation, the group’s positive half year results update in August now appears to have provided impetus for a further push northward from the shares.

In detail, management unveiled a positive financial performance for the first half with strong growth across all of its key reporting metrics. Most notably, revenue climbed by 25.2% from $179.5 million to $224.8 million while underlying EBITDA increased from $41.3 million to $51.7 million.  

In addition to a strong financial performance, the group also opened three new medical centres and added 31 revenue-generating doctors to the payroll, which bodes well for earnings over subsequent periods.

Looking past the financial and operational performance, all of the key fundamental drivers behind Al Noor Hospitals’ growth prospects remain in place. The CEO acknowledged some of these in the group’s H1 results presentation by drawing attention to the increasing prevalence of obesity and diabetes within the UAE population.

Complimenting increasing rates of non-communicative diseases is the phasing in of mandatory health insurance regulations. While regulations have required visitors and expat workers to demonstrate that they have suitable health insurance before entering the emirates for some time, 2016 will mark the point at which everybody within Abu Dhabi will be expected to have private health insurance.

We expect that this will continue to drive growth in the notional value of health care spending across the UAE, from emirates such as Abu Dhabi and Dubai, which are already in the process of implementing such regulations, to those emirates which are expected to follow suit over the years ahead.

As the largest provider of private healthcare services in Abu Dhabi, with a strategic vision to branch out into Dubai and other emirates, Al Noor Hospitals Plc remains well positioned to exploit such trends and changes.

Going forward, management expect to maintain their focus upon both organic and inorganic opportunities for expansion. Here, increasing headcount at existing medical centres remains a priority in Abu Dhabi while inorganic growth through acquisition continues as the group’s strategy for expansion into other emirates such as Dubai.

In relation to the balance sheet and valuation, consensus projections see full year EPS coming in at 45.7 pence per share. This implies a 23.82 X forward earnings multiple, which is substantially below the sector average of 26.17 X. In addition to the discount, Al Noor Hospitals Plc maintains a clean balance sheet in relation to borrowings and has a cash allocation of $81.7 million for inorganic growth opportunities (M&A).

In summary, with the fundamental drivers of double-digit growth still present across all metrics and the valuation at a considerable discount to the sector average, we conclude that the shares remain attractive.

Consequently, we maintain our previous trading guidance in that the Al Noor story is an attractive one across all time horizons. Today we assign a medium term price target of 1,180.00 pence to the shares, currently trading at 1,087.00 pence.

Al Noor Hospitals Group Plc Share Price at Hourly Intervals

Al Noor Hospitals Group Plc August

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