Operating in a sector that is rife with takeover speculation can be no bad thing for a company’s share price. And so it was for NMC, the blue-chip specialist hospital operator based in Abu Dhabi, whose stock hit a peak last August of £41.20 as much on the back of a string of healthcare M&A deals as on its growth.
Since then, however, the bears and the short sellers have taken advantage of technical pressures on the share price after its founder and joint chairman posted stock as collateral for a loan using derivatives to protect himself from large changes in the price. Operationally, the company has continued to motor.
NMC Health is one of those FTSE 100 businesses that tends to slip under the radar for many stock market observers. Founded in 1975, it is the largest private healthcare company in the United Arab Emirates, though it also operates in several countries in Europe and, as of the acquisition of Aspen Healthcare last year, is also in the UK.
The group owns and manages more than 200 healthcare facilities, including hospitals, clinics and day surgery centres in more than 15 countries, working with more than 2,000 doctors and 20,000 paramedics and support staff to treat more than 8.5 million patients a year.
Having listed in 2012 at 210p, the shares have since risen by close to 1,000 per cent and value the group at more than £4.8 billion.
By far the largest part of its business is its multidisciplinary hospitals, which have just under 1,600 beds; these have a high occupancy rate but provide a relatively modest annual revenue per patient for the company. Far more lucrative are its specialist maternity and fertility clinics, with IVF a particularly strong-looking opportunity, and its centres for providing long-term and specialist care, though as divisions they are growing less rapidly.
NMC Health’s shares have flourished for several reasons. First, it is well placed to capitalise on the structural increase in private healthcare provision in its chosen geographies. The economies in the Gulf region, for example, are relatively wealthy, have populations with a high life expectancy and have been gradually moving to mandatory health insurance programmes to help build up their medical infrastructure.
Second, it is operating in a fragmented and consolidating sector where scale increasingly means power. Among London-listed companies, for example, in late-2015, Al Noor Hospital, also based in Abu Dhabi, executed a reverse takeover of Mediclinic, which is based in South Africa.
NMC Health has agreed regular deals and small bolt-on acquisitions, including last year’s £10 million acquisition of Aspen. It recently completed a healthcare joint venture in Saudi Arabia and acquired a majority stake in Boston IVF, a US fertility treatment specialist.
Being so fond of deals has led to questions about whether NMC Health has been buying, rather than achieving, revenues but a 15.4 per cent year-on-year organic growth in turnover last year seems highly respectable. Group revenues were up by 28.3 per cent to more than $2 billion, meaning roughly half the growth was earned, not bought.
NMC Health emphasised that, at least in the short term, it would concentrate on digesting its recent deals rather than hunting new ones, but the shares, down 6p, or 0.3 per cent, to £22.88 yesterday, have continued to be depressed.
The shares are rated at about 18 times Bank of America Merrill Lynch’s forecast earnings for a yield of 1.4 per cent. They feel oversold.
ADVICE Buy
WHY Ambitious and achieving healthcare provider in an attractive sector whose shares should have further to run
Oxford Instruments
Longstanding investors in Oxford Instruments may wonder why the company didn’t undertake its change of strategy sooner. Deciding to prioritise winning new business from commercial customers, as opposed to academics and scientific researchers, has done wonders for the Oxford University spin-out, known for creating the first superconducting magnet that made MRI scanners possible.
Dubbed “Horizon”, the strategy was the idea of Ian Barkshire, 53, Oxford Instruments’ chief executive, and has helped propel the company into the FTSE 250 since this column last wrote about it in November. Already on the up back then, the shares have risen by almost 40 per cent in the interim.
Oxford Instruments was created in 1959 by two Oxford academics and listed on the stock market in 1983. Its main expertise is the high-tech materials and devices that facilitate analysis and measurement at an atomic level and its products are used in areas from 3D printing and car manufacturing to space missions.
Mr Barkshire took charge in May 2016 in the wake of two profit warnings. As well as immediately offloading its underperforming industrial analysis business, he put Horizon in place in an effort to generate more reliable long-term earnings for Oxford Instruments, whose academic customers can be more exposed to budget cuts.
Notable in the annual results published last month was that, for the first time, commercial customers accounted for more than 50 per cent of group revenues, which also increased at a healthy rate, up 12.4 per cent to £333.6 million.
Operationally, this company is looking increasingly compelling, tied as it is to transformations taking place in areas such as carmaking, aerospace, telecoms and energy. Being more tied into the commercial world makes it more exposed to macroeconomic fluctuations and trade tensions but this should lessen the more diverse it becomes.
The shares, down 56p, or 4.1 per cent, to £13.24, trade for 19.9 times Investec’s forecast earnings, which is not particularly expensive, although the dividend yields a modest 1.2 per cent.
ADVICE Hold
WHY Signs of strong progress but it is fully priced
