What is NMC?
More to the point, why is NMC Health Plc., little known in the UK outside of The City, the best performing FTSE 100 share this year, up almost 80%? In many ways, NMC is typical of many FTSE stocks, with only tenuous links to the UK. The index after all is more of a global, than a local market, so NMC is not unusual. The Abu Dhabi based group operates an international network of private hospitals, though most are in the United Arab Emirates, where it makes 95% of its revenue. It runs a smaller number of IVF clinics in Europe and Latin America. It also has a distribution business, accounting for 35% of its revenues, with exclusive rights to products made by Nestle, Unilever, Pfizer and others.
Earnings forecast to double over 3 years
When it listed on the FTSE 250 in 2012, NMC was already the largest private healthcare provider in the UAE but has since grown further by opening or winning contracts for a string of facilities, acquiring up a couple of rivals on the way. Investors have consequently bought into the story of NMC’s dominance of a wealthy private healthcare market with countercyclical attractions. Earnings growth is currently backing high expectations. For this calendar year NMC net profits are forecast to jump 55% to $205m. They’re seen more than doubling thereafter to $456m in 2020. Before then, NMC is likely to tweak guidance after purchasing two further hospitals in Saudi Arabia a few weeks ago. It plans to continue proactive acquisitions and expand fertility services outside of UAE.
Growing fast, spending big
These plans are of course having an impact on NMC’s financial leeway. Whilst it generated some $117m in its previous financial year, it plans to spend the entire sum plus more in debt. Its net debt is currently three and a half times the size of last year’s core earnings. True, the group is more than capable of absorbing demanding capex needs. Its balance sheet is solid and it has seen compounded 3-year revenue growth of around 30%. But it is also expensive, with shares trading 30 times this year’s forecast earnings. More financially efficient rivals offer better dividend yields than NMC’S 0.7%.
Even so, as long as NMC remains in as rude health as today, expansion plans and exposure to attractive markets should keep the stock underpinned for the foreseeable future.
Technical chart-wise, the stock’s current pullback from record highs last week is in focus. Traders are interested to see whether it is a ‘normal’ consolidation, or whether it could extend for long enough to make investors uncomfortable. We see the probability of that as low, but after NMC broke under 2982, having paced resistance there on the way to its all-time high, downside momentum has increased. The next price to watch will be support at 2360p, which was corroborated by bounces there in August September. If it breaks, and the normative 61.8% Fibonacci retracement marker also gives way, selling is likely to accelerate. Even so, we would not expect underlying sentiment on the name to deteriorate above 2000p. Note the current best-fitting trend line supported lows all the way back to November last year. Price will need to break it in the near term and then destroy all the value back to inception around 1300p, to cause a serious rethink by large investors.
Figure 1 - NMC Health plc share price chart (daily intervals)
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