Can NMC Shares Recover?

NMC Health shares dived over 50% across the previous week, wiping £2.7 billion from the company’s value. Today the stock has jumped over 20%. What is causing such high levels of volatility and is it time to buy?

The share price of the UAE based healthcare provider collapsed last week following scathing research report by short seller Muddy Waters. 

Excessive debt is a key risk for the company. Part of Muddy Water’s hypothesis is that NMC has substantial debt which it keeps off its balance sheet in a similar way that Carillion did, and which contributed to its collapse. Questions over fraud and theft of company assets were also brought up by Muddy Waters. 
Given investors’ reaction to the Muddy Waters accusations, it would appear that many agreed. 

NMC's rebuttal on Friday did little to stop the run on shares, investors needed more than a simple denial. However, today’s announcement that it has launched a review of its books following the Muddy Waters report appears to have quelled some fears, at least for now.

What next?
The future of NMC depends largely on whether the allegations turn out to be true. If they are true, the company’s financial outlook must be reassessed by the market. 
Allegations like this often stain a company and it can take a significant amount of factual evidence to boost confidence and change opinion. It is unlikely to be a quick process to get to the bottom of this which means that the share price could struggle to recover to pre allegation levels any time soon.


Join our live webinars for the latest analysis and trading ideas. Register now

GAIN Capital UK Limited (trading as “City Index”) is an execution-only service provider. This material, whether or not it states any opinions, is for general information purposes only and it does not take into account your personal circumstances or objectives. This material has been prepared using the thoughts and opinions of the author and these may change. However, City Index does not plan to provide further updates to any material once published and it is not under any obligation to keep this material up to date. This material is short term in nature and may only relate to facts and circumstances existing at a specific time or day. Nothing in this material is (or should be considered to be) financial, investment, legal, tax or other advice and no reliance should be placed on it.

No opinion given in this material constitutes a recommendation by City Index or the author that any particular investment, security, transaction or investment strategy is suitable for any specific person. The material has not been prepared in accordance with legal requirements designed to promote the independence of investment research. Although City Index is not specifically prevented from dealing before providing this material, City Index does not seek to take advantage of the material prior to its dissemination. This material is not intended for distribution to, or use by, any person in any country or jurisdiction where such distribution or use would be contrary to local law or regulation.

For further details see our full non-independent research disclaimer and quarterly summary.