1. Today’s Trading Playbook
KEY THEMES
Ibnsina Pharma [ISPH] announced yesterday the signing of a contract to acquire El Shorouk Hospital, aiming to achieve forward integration, capitalizing on growth prospect outside the pharmaceutical distribution business model. According to ISPH press release, the target hospital capacity is 105 bed, along with operation rooms and intensive care beds. The hospital also contains infant incubators unit, intracytoplasmic sperm injection unit, x-ray unit, dental unit, dermatology & laser unit, ophthalmology unit, physical therapy unit, and gastrointestinal endoscopy unit in addition to specialty clinics.
The signed deal will see ISPH paying a total consideration of EGP430mn, with only EGP200mn paid in cash while the remaining EGP230mn is paid through debt settlement. Management expects the hospital to enter in renovation and improvement phase, being ready for operation by end of 2022. Considering Cleopatra Hospitals Group’s [CLHO] market valuation, the implied deal valuation for El Shorouk Hospital seems cheap in comparison. We estimate El Shorouk Hospital is valued at an EV of EGP4mn/bed, a 59% discount to CLHO’s EGP10mn/bed. However, this could be attributable to size consideration, as well as the different clientele mix.
We are generally positive on the deal, as it will allow ISPH the chance to diversify its top line, as well as enriching the company’s margin, as the distribution business only harvests c.1.1% on a net margin level. Aside from the deal, ISPH is now cheaper than ever, trading at TTM P/E of only 6.7x. Since COVID-19 took place, ISPH just was not the market favorite by any means. We continue to believe that bad market conditions will provide long-term rewards for investors, especially within defensives, where ISPH is an obvious candidate.