NMC Health revives on stake sale talk

NMC Health is enduring a tougher 2019, but returned to form today amid speculation over a stake sale.

Just as the star status of NMC Health (LSE:NMC) looked to be fading in the FTSE 100 Index, the UAE-based healthcare provider has burst back to the top of the blue-chip risers board in dramatic fashion.

The trigger for the 25% surge in share price to 2,426p followed speculation that two groups had made competing offers to buy a 40% stake in the group worth up to £1.5 billion. In addition, NMC is seeking shareholder approval to carry out a $200 million share buy-back programme so that it can to take advantage of any periods of "exceptional price volatility".

The moves follow a rocky patch for the shares in 2019, with NMC trading as low as 1,791p earlier this month. This decline prompted the company to issue a recent statement reassuring investors that it continues to trade in line with expectations.

This was underlined by today's half-year results, with the City relieved by free cash flow of $77.8 million versus an outflow of $12.5 million a year earlier. Chief executive Prasanth Manghat said he saw room for further improvement in the second half.

NMC Health secured promotion to the FTSE 100 Index in September 2017 following a meteoric rise since listing on the London Stock Exchange in 2012. It was one of the best performing stocks during its first year in the top flight, giving the company a valuation in excess of £7 billion as it attracted broker price targets as high as 4,600p.

Those worries over cash flow generation were one reason why NMC has endured a tougher 2019, leaving the stock closer to the FTSE 100 Index relegation places with a value of £3.8 billion.

Analysts at Bank of America Merrill Lynch maintained their "buy" recommendation and price target of 3,900p today, adding that the current market valuation significantly undervalued the company's double-digit organic growth.

NMC served a total of four million patients in the half year, which was almost 17% higher than a year earlier. Underlying earnings of $323.5 million represented growth of 22.5% on 2018.

As one of the largest healthcare operators in the Middle East, NMC added it was well placed to benefit from the recent trends in the market involving the consolidation of smaller players and the tightening regulatory environment.

The company, which started out from a one room clinic in Abu Dhabi to become a global healthcare enterprise in the space of 40 years, has two main branches — NMC Healthcare and NMC Trading, which is a leading distributor of pharmaceutical products.

Analysts at Citi said the reaction to the results was positive, but that this had been over-shadowed by the potential sale of the collective 40% stake of the Butti family.

They noted that the recent weakness in the share price meant any offer would need to be at a significant premium to tempt the family to sell. 

Citi added that some investors viewed the support of the family as a key positive feature of the NMC equity story:

"Net, we think a partial sale of the collective stake would likely be the best result for minority institutional investors."