Here Comes HMG! — هلا بالحبيب
The HMG IPO is finally upon us. Habib Medical Group (HMG) is the largest private provider of healthcare services in the Middle East, and is the holding company of legendary doctorpreneur Dr. Sulaiman Al Habib. HMG hands down enjoys the strongest (subjective) reputation for medical excellence when it comes to local patient perception. The IPO is slated for the Ides of March and it will be the Kingdom’s first IPO in 2020, following Aramco’s success in raising more than $29bn last December. HMG had previously abandoned plans for a Tadawul float in 2014 following a drop in oil prices which shored up local liquidity and eviscerated macroeconomic market conditions.
Reports suggest that HMG will be valued anywhere from four to five billion dollars signifying the company’s potential to become the largest (or at least second largest) hospital management company by market value with ties to the GCC (see below table). It is important to note that the Capital Markets Authority (CMA) relaxed the traditional IPO requirement to list at least 30% of a company in order to encourage more family-owned companies to list as part of a bid to deepen its capital markets under a reform push of Vision 2030.
The offering size of 15% of existing shares in a secondary sale (52.5million shares out of 350million shares listed on the Tadawul’s Main Market) is expected to raise between $375 to $400 + million dollars. Assuming the widely reported $4 to $5 billion pre-IPO valuation, with 15% of the company represents 52.5m shares, we could assume a share price of around $11.45 to $13.33 a share or ~43 to 50 riyal range. It is widely expected that 100% of the first tranche will be gobbled up by regional institutions (52.5 million shares) with a retail investor claw-back of up to 10% (5.25 million shares). HMG has appointed Jadwa Investment and Riyad Capital as advisers on the deal. Financial services provider Saudi Fransi Capital was appointed lead manager of the deal last October.
Habib Medical Group currently operates 20 medical facilities across Saudi Arabia, the UAE and Bahrain, including seven fully owned hospitals (including one in Dubai Healthcare City), 13 pharmacies, six operated government intensive care units across the Kingdom, and one operated hospital in Bahrain. HMG is also planning three additional hospitals in both Riyadh and Jeddah.
Overall, HMG employs 10,000+ employees (including 2,085 doctors) and owns/manages 1913 hospital beds and 1,371 clinics treating over 3.3 million patients annually (around 870k of which book their appointment online via a smartphone).
HMG has a proven track record with a robust expansion plan’ successfully opening on average a new hospital every ~29 months, and completing construction in ~33 months, while reaching positive EBITDA in ~16 months. The expansion plan entails opening three new hospitals, adding 1,180 beds, (~62% an increase to the current capacity).
HMG — More than just hospital services
HMG should be considered a well-diversified health holding company and not just a plain vanilla healthcare services company. HMG owns and operates Al Mokhtabarat Diagnostic Medical Company and the apoetically named Home Healthcare Company.
Unbeknownst to most investors (and patients), HMG is also a digital health powerhouse. HMG provides medical information technology and systems services through its wholly owned subsidiary, Cloud Solutions for Communications and Information Technology, which has pioneered the development of its own proprietary healthcare information systems (HIS) named VIDA, including integrations to native applications that enhance patients’ experience (a total of 11 specialized applications including Tele-ICU and Tele-radiology). In addition to the HMG network, HMG is currently implementing VIDA in 17 governmental hospitals across the Kingdom.
HMG has the potential to be a long term dividend paying cash cow with 2019 revenues topping the five billion SAR or $1.34 billion with healthy EBITDA margins that range from 21–26% over the past four years.
As far as comparable go, some stars (in terms of P/E ratio) of the healthcare sector listed on the Tadawul include Middle East Healthcare Company (MEAHCO), the KSA’s current largest healthcare company and which owns and operates the Saudi German Hospitals, and National Medical Care, which operates two hospitals in Riyadh under the brand Care. As of today, MEAHCO has a market cap of $1.36 billion and a P/E ratio of 33.76. National Medical Care has a market cap of $1.11 bn and an equally impressive/aggressive P/E ratio of 33.47. There is no doubt in my mind that HMG will easily blow both out of the water.
All publically listed hospital operators/investment companies in the region also have healthy P/E ratios (despite the recent Muddy Waters turmoil that plagued NMC). Below is a quick table: