Beltone Financial said in its yearbook that they continue to favour Egypt’s healthcare sector heading into 2020 due to its inherent top-down fundamentals, under-tapped potential, shortage of bed capacity, and its pent up demand for high quality services in light of the implementation of the new Universal Health Insurance system since July 2019.
In this respect, Beltone analysts flagged Ibnsina Pharma (ISP) with solid growth supported by the sector’s strong fundamentals, the company’s expansion mode, and EPICO along with attractive recovery stories backed by the new management strategy.
Ibnsina offers the best exposures to a fast growing sector, with the company operating with a concentrated segment in the value chain distributor, and distributing 93% of the traded SKU in the market (in term of value). Moreover, ISP’s management continues to invest in expanding the company’s presence by increasing the number of distributions centres to reach more clients and provide them with the best exposure. This strategy helped ISP to outpace market growth and gain an additional 10% market share over the last five years to stand at 20% by third quarter (3Q) of 2019.
Beltone analysts believe ISP will continue to show strong growth during 2020 driven by total Pharma market growth, expanding its number of distribution centres to capture market share. ISP has also been benefiting from its economies of scales, due to the number of drops and aggregate delivery volumes against ISP’s large fixed cost base. This comes in parallel with ISP investing in supply chain technologies to enhance distribution efficiency.
They also like EPICO given the company’s new management effort to refuel its sales growth and regain margins. We already witnessed strong sales growth in the first half of 2019 (1H19) after management increased its resilience for professional pharma distributors, while increasing sales efficiency.
They believe this trend will continue as the company is still working on pushing its local sales while expanding its export markets. Moreover, management is still working on improving its margins due to a surge in raw materials costs. This will be achieved by restructuring the procurement department to source cheaper and equally effective pharmaceutical ingredients, while halting production of drugs. Beltone analysts, therefore, expect to see an improvement in margins in 2020 after the depletion of EPICO’s current stock of expensive raw materials.
On the other hand, Pharos holding analysts expect that healthcare providers will continue to benefit from increased volumes and prices, and expecting health margins on the back of increased demand for premium healthcare services, supported by the noticeable shortage in supply. Major market players continue to expand their geographical outreach as well as establish exceptional medical facilities in the untapped Egyptian market.
Pharos analysts hope relative stability in commodity prices and local currency appreciation would allow companies to improve their profitability. They also noted that deceleration in inflation would relieve pressure on consumer purchasing power and improve sales volumes, and the resumption of monetary easing would improve profitability for leveraged companies. On the other side, increased competition would squeeze margins and hinder potential growth opportunities; spike in commodity prices amid a seemingly fragile consumer environment would further pressure company margins, and unexpected local currency weaknesses would create further pressure on margins and volumes in case of price increases.
Moreover, EFG Hermes said in its 2020 yearbook that Egypt’s healthcare and pharma sector has shown improved performance after muted volumes in 2017, as the prices of drugs and healthcare services were increased posed-EGP floatation. EFG analysts believe that Egypt’s largest diagnostics labs operator, IDH, is a preferred play, on the back of rising volumes, while it continues to have pricing powers by 10-15% per year. They’re also optimistic towards pharma producer EPICO, which has also seen a pick-up in local volumes, driven by strategies adopted by new management to recoup previously lost market share. Similarly, pharma distributor Ibnsina pharma continues to deliver robust earnings growth, owing to continued market share gains and better margins mainly on economies of scale.
