How do you value stock-listed and private healthcare service companies during COVID-19?
“We believe the quality of MDC’s [Mediclinic’s] business will help the company navigate current challenges due to COVID,” was investment bank Jefferies’ main reason for increasing its price target (PT) for Mediclinic by 8% this week. Similarly, a UK analyst has said that COVID has “changed the way we think about valuations” and that Spire Healthcare’s flexibility in supporting the NHS is one of the main reasons it should be a ‘Buy’.
Of course, quality of business and relationships with the public sector are massively important. But quality can be a bit fuzzy, and it’s hard to actually prove that Mediclinic is a quality leader in its markets since few of its competitors are as transparent on clinical data as it is.
And building a strong relationship with the public sector? Spire will eventually have to revert back to profit-making from its NHS work (currently it is providing services at cost) and in doing so could risk ruining the good PR it has built up if it is seen to be unfairly profiting off a crisis. COVID-19 may be with us many more quarters (and potentially years) of financial results.
And the problems for buyers when valuing privately-held acquisition targets are obvious. Attendees at last week’s HBI-365 Investor Panel (write-up here) are completely split on what will happen to valuations this quarter and when deal flow will return to pre-COVID levels.
How else can you explain the fact that there hasn’t been a single private equity transaction above €200m in value since COVID-19 that a) wasn’t an infrastructure fund (whose cost of capital is lower and therefore can pay more) and b) showed one buyer willing to take full exposure of the asset? (Elsan and Curium at the top-end have seen mixed shareholding transactions.)We would welcome your thoughts on this story. Email your views to Cameron Murray or call 0207 183 3779.