Today’s Trading Playbook
KEY THEMES
Integrated Diagnostics Holding [IDHC] announced yesterday the signing of a purchase agreement to acquire Evercare Group’s 50% stake in Base Consultancy FZ LLC, the holding company of Islamabad Diagnostic Centre (IDC), for a total consideration of USD72.35mn. IDC is one of the active integrated diagnostic players at the Pakistani market, serving almost 2mn patients in its last fiscal year, and performing around 3mn tests. Evercare Group is an emerging markets healthcare delivery platform managed by TPG and backed by The Rise Fund. IDHC has mentioned that the acquisition is yet subject to regulatory approval from the Competition Commission at Pakistan. The acquisition comes within IDHC’s management strategy to seek inorganic growth in a number of fast growing, high-population markets within Africa and Southeast Asia.
The deal values IDC at c.USD144.7mn. We note that, according to IDHC disclosure, IDC has managed to generate revenues in its fiscal year ending 30 June 2021 of USD46mn hitting a 3-year CAGR of 87%, whereas bottom line came at USD13.7mn, implying NPM of c.30%. The reported figures by IDC imply revenue per test of c.USD15, against c.USD10 for IDHC. The target company has a branch network that grew from 23 branches in 2017 to 85 branches in 2021, with plans to reach 100 branches by 2023. According to its latest financials, IDC is valued at a P/E of 11x and a P/S of 3x. IDHC has announced that more than 80% of the deal could be financed through debt, where IDHC has already successfully arranged loan agreement from International Finance Corporation (IFC) of USD45mn.
Meanwhile, IDHC is having a fantastic and exceptional year in 2021, as both volume tests and average price per test showing astounding growth y/y. IDHC is about to end the year with a top line close to EGP5bn and net earnings that hover around EGP1.5bn. This means that IDHC is currently traded at 2021e P/E of only 8x, which is really unfitting to the company’s growth potential and nature of business model. Despite this year being a remarkable and exceptional one, we view ample and sufficient growth for IDHC in the future, especially with the company employing both organic and inorganic growth strategies, with strong underlying growth fundamentals in the operated markets. Hence, we are positive at IDHC’s recent acquisition. Finally, we note that IDHC’s close at London Stock Exchange yesterday was USD1.33/share, which is 9% higher than its current market price at EGX.
On a separate, yet related note, with EFG Hermes Holding [HRHO] acting as the exclusive financial advisor to TPG in this deal, this is yet another positive for HRHO’s investment banking platform.
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