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Al Noor Hospitals Group Plc Interim Update – 30 October 2014

Company Overview:

Al Noor Hospitals was established in 1985 as a private healthcare provider in Abu Dhabi. In this time, the company has grown to become one of the leading providers of private health care services in the UAE.

In 2013 the group listed on the London Stock Exchange and was admitted to trading on the FTSE 250. As of March 2014, the company operated three full service hospitals and a number of medical centres across Abu Dhabi, servicing nearly 50,000 inpatients and a total of 1.6 million outpatients.

Core areas of focus for the group include: Cardiovascular treatment and surgery, Bariatric (weight loss) treatment and surgery, Cancer treatment and surgery, Neurosurgery – Urology – Orthopaedic – Paediatric – Ophthalmology (Eye Surgery).

Index FTSE 250 Ticker ANHA.L Latest Close 1023.00
52 Week High 1308.13 52 Week Low 711.92 P/E 20.87
Dividend Yield % 1.1% Dividend Cover 4.45 CEO: Ronald Lavater
CFO/Group FD: Mr Pramod Balakrishnan Price Target 1180.00

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Al Noor Hospitals Plc shares pull back and consolidate after breaching price target

Since our price target of 1180.00 pence in late August, shares in Al Noor Hospitals Group Plc have pulled back considerably, reaching lows of 957.00 pence in early October before paring some of their losses to close this week at 1023.00 pence per share.

While we believe that a pull back was likely under any circumstances after such rapid gains, it appears that much of the decline can be attributed to a singular source.

This is as the departing CEO and founder of the group is reported to have sold 5 million shares throughout September, or almost 5% of the company, at a price of 1,000.00 pence each.

The move came as part of a planned succession and a managed exit from the group as Dr Kassem Alom stepped down from his post on 01 October. He now occupies the position of Non-executive deputy Chairman at the group while Ronald Lavater, formerly of Johns Hopkins Medicine International, has stepped in to replace him in the capacity of CEO.

Al Noor Hospitals Group Plc Share Price // Daily Intervals

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Al Noor continues to see strong revenues and earnings growth during the 3rd quarter

In keeping with its strong H1 performance for 2014, Al Noor Hospitals announced another stellar quarter of growth this week when delivering its Q3 interim management statement.

Continued performance in the recent quarter means that revenue and underlying profit growth has been strong throughout much of the year to date, at 25% and 22% respectively. This is while margins have also remained constant at 23%.

Underlying the reported top and bottom line growth has been a number of factors. Most notably, the group have remained focused on growing existing revenues through further headcount expansion (+ 101 revenue generating doctors YTD), as well as bolt on acquisitions in and around the emirates.

In this regard, Dubai remains a key target for infiltration given Al Noor’s core competencies and the emirate’s favourable demographics. For this reason the group has continued to maintain a substantial cash position on its balance sheet, which was reported at $104.7 million this week, $82 million of which is reserved solely for acquisitions.

Furthermore, management have overseen the opening of three new medical centres so far in 2014, which places the group on track to meet internal targets for the full year.

In addition to operational expansion, the group is on track to exceed $400 million in revenue, which at a 23% constant margin, leads us to upgrade our earnings outlook for the full year 2014. We now see earnings per share coming in ahead of consensus at 49.20 pence as opposed to the previous 47.30.   

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Summary and outlook

All in all, Al Noor Hospitals Group Plc remains an attractive play on a rapidly growing industry.

With the UAE boasting one of the highest rates of GDP per capita in the world, regulations that stipulate mandatory private health insurance and a population plagued with alarmingly high rates of diabetes, obesity and other NCD’s per capita; Al Noor Hospitals will benefit from strong demand for its specialist skill-set and range of treatments in these areas.

In addition to this, the group has the resources and vision to capitalise further on the above trend. With a substantial cash position and a strategy of pursuing both organic as well as inorganic (M&A) growth in other high value areas, we believe that the pace of growth exhibited by the group since its IPO in 2013 is sustainable.

In response to another successful quarter we have revised upwards our full year earnings estimate for the group. We now see EPS coming in at 49.20 pence per share in 2014. This implies a forward earnings multiple of 20.87X, which offers a substantial discount to the current sector average of 26X projected earnings.

Consequently, we believe that Al Noor Hospitals Group Plc remains attractively priced at the current level of 1,023.00 pence.

Today we maintain and reiterate our earlier price target for the shares at 1,180.00 pence. While this target has already been achieved in recent months, we are conscious that in the short term the price could be impacted by any further disposals from the departing CEO, while over the medium to longer term we advocate that the shares would need to stabilise at the 1,180.00 pence mark before we can begin to look to higher levels.  

The next scheduled event of significance will be in late January with the release of full year results. Accordingly, we shall endeavour to keep all of our members updated in the interim, before revisiting our investment case and price targets in the new year.

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