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Mediclinic (MDC) will be the stock in focus: (Price at time of writing: R189.95 as 26 March 2016)
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Background and overview of Mediclinic International
Mediclinic (MEI) is the old Mediclinic South Africa that has been merged with AUE medical group Al Noor. The results and analysis of this share is based on pre-merger financial results. Mediclinc before the acquisition had exposure in Middle East, South Africa and in Switzerland. They offer general hospital services as well as specialised healthy services across their facilities in the various regions. The merger between MDC and Al noor will lead to the creation as the 3rd biggest acute hospital group outside of the United States.
Scroll over or click on the funnel chart to get more details of MEIs latest financial results
Financial review:
MEI generated roughly R9.10 a share in cash from operations for the year ended 31 March 2015, while normalised earnings per share amounted to R4.00 a share. They are a strong cash generative business and is in a market for which there will always be a demand. Healthcare services is and always will be in high demand. All over the world. And because of this, MDC's share price can and should demand to trade at a consistently high PE (compared to the overall market). As chances of earnings not growing consistently over time is slim.
Their net profit margin is sitting at around 13%, which is pretty high, and it seems that the most profitable region for their operations is in South Africa, compared to the Middle East and Switzerland. Begs the question if there is not enough competition in South Africa to allow MEI to get away with earning the bigger margins in this country?
Their net profit margin is sitting at around 13%, which is pretty high, and it seems that the most profitable region for their operations is in South Africa, compared to the Middle East and Switzerland. Begs the question if there is not enough competition in South Africa to allow MEI to get away with earning the bigger margins in this country?
The graphic below shows the contribution of MDC's operations in different regions to both their revenue and their pre-tax profits. Highest margins achieved are in South Africa, where revenues make up almost 35% of the total, yet South Africa contributes 39.9% of pre-tax profits.
With a prudent management team and strategic acquisitions and mergers made in foreign markets, MEI seems well placed to excel in coming years. And diversifying their earnings streams away from South Africa will yield good results as the South African Rand seems set to continue depreciating in coming years. Thus any foreign earnings reported in Rands will make the results in Rand terms look even more attractive.
Valuation:
Based on MEI's pre merger financial results, we value the group at R199.20 and R201.50. At current levels we believe MEI to be a good long term buy and that they offer value at their current price.
We use our Share Valuation Calculator as guide to valuing shares. We believe in value investing and our above mentioned share valuation is based on the underlying fundamentals and financial statements of the stock in question.
We use our Share Valuation Calculator as guide to valuing shares. We believe in value investing and our above mentioned share valuation is based on the underlying fundamentals and financial statements of the stock in question.