Goldman Sachs upgrades Mediclinic to 'neutral' after underperformance
Goldman Sachs has upgraded Mediclinic to 'neutral' from 'sell' following underperformance.
The bank noted that since being added to the 'sell' list on 1 June 2017, the stock is down 17% versus the MSCI EEMEA down 0.7%. It argued that Mediclinic's share price now fairly reflects the negative read-across for its South African business for the LHC/NTC trading updates as well as integration post inorganic expansion of its UAE business.
Goldman, which cut its price target on the stock to 670p from 700p, said the environment remains challenging across all three of Mediclinic's segments. In South Africa, it expects a weak labour market to continue pressuring the company's patient volumes, while any material improvement in EBITDA margins in FY18-20E appears unlikely due to subdued occupancy rates.
Meanwhile, in Switzerland, it expects growth to remain in low single digits, with no capacity additions and already high occupancy rates, and EBITDA margins in FY18/19 to decline on revisions to outpatient tariffs.
In the UAE, Goldman has yet to see the company executing on Al Noor integration issues and demonstrating an improvement in the company’s legacy Dubai business. It estimates only around5% growth in the legacy business in FY18E, broadly in line with FY17.
"Nevertheless, given MDC’s circa 12% share price drop over the last three months, we believe that the risk/reward profile is now balanced," GS said.
At 0955 BST, the shares were up 1.2% to 661.50p.