Erste raises the price target for the MedLife share to 6.06 lei, 17% above yesterday's market quote

Erste Group raised the price target for the MedLife (M) share to 6.06 lei, compared to 4.19 lei indicated in April, and changed the recommendation from "Hold" to "Accumulate" for the shares of the private provider of medical services , according to the latest analysis report signed by Caius Râpanu, which was published on the BVB Research Hub website.

The new target is about 17% above MedLife's share price yesterday, from the first part of the trading session, of 5.15 lei. According to the report, the increase in the price target and the modification of the recommendation is based on the results above expectations reported by the medical service provider in the first three months of the year and the fact that the expectations of the Erste team regarding the evolution of the business engines were validated by the management regarding the increase in tariffs and of the main cost elements.

In addition, Erste reassessed the amount of capital expenditure (CAPEX) required to run MedLife's business, impacting the discounted future cash flow (DCF) method used in valuing the shares, according to the report. "After discussions with the management, I understood that - for existing businesses - the amount of CAPEX related to maintenance is somewhere around 25 million lei per year. However, we increased this amount to 30 million lei per year," the document states.

In Erste's view, the core elements behind the company's growth model are:

-Romania has promising growth, both in terms of GDP and purchasing power, and quality healthcare is still far from ubiquitous;

-despite the emergence of a few big players, there is still room for consolidation;

-at this stage of market development mergers and acquisitions are probably the most appropriate way to grow the footprint;

-strategic - in the long run - the cost of funding for expansion may be less than the potential strategic cost of losing the race in terms of size.

"We fully agree with the strategy (n.r. of MedLife); we are also encouraged by the positive aspects regarding the evolution of margins during the first quarter of 2024 and, in particular, the positive evolution of the average tariff, in annual dynamics. This shows that - despite the competition - the company's superior service is worth a premium, and the market recognizes this reality. We continue to monitor the group's ability to integrate and streamline the multitude of businesses it has acquired," the report said.

For the first three months of the year, the MedLife Group reported a turnover of 646.6 million lei, up 22% compared to the first quarter of last year, while the net profit was 13.1 million lei , increasing by 55.5%. On an individual level, the medical service provider reported a net profit of 4.1 million lei, compared to a loss of 3.8 million lei, in the first three months of last year.

For this year, Erste estimates that the MedLife Group will have net sales of almost 2.59 billion lei, 17% above those in 2023 and a net profit of 19.7 million lei, compared to a loss of 4.2 million lei last year.

MedLife is one of the favorites of Pillar II - at the end of April, all seven mandatory private pension funds had shares in the medical service provider, controlling, together, 37.4% of the company, according to the site desprepensiiprivate.ro.

At the end of 2023, the Marcu family owned almost 40% of the medical services provider, but also sold shares during the year, according to reports from the Bucharest Stock Exchange.