Interest in CHG Points to Market Appetite for Medical Care

March 24, 2022


Among the three companies listed on the healthcare and pharmaceuticals sector index on the Egyptian Exchange (EGX), Cleopatra Hospital Groups (CHG) holds the lowest weighted average at 26.2 percent.

The two other companies are the Egyptian International Pharmaceuticals Industries (EIPCO) and Ibn Sina Pharma. They hold 42.29 percent and 31.51 percent, respectively.

Investors currently only have CHG as the primary EGX listed hospital firm. It’s generally seen as an attractive proposition with operations secured by expanding demand for healthcare services and the firm’s multiple expansion projects.

CHG is the biggest private sector hospital group in Egypt, with a total of 643 beds divided between six operating hospitals including Cleopatra Hospitals, Cairo Specialized Hospital, Nile Badrawi Hospital in Maadi, Queens Hospital in Heliopolis and El Katib Hospital in Dokki.

The company was listed on the EGX on April 13, 2016, and made its trading debut on the EGX in June 2016. The transaction revealed a hefty participation from global funds evidenced when the offering of 34 million shares to international institutions was 6.7-fold oversubscribed while the Egyptian retail offering of 6 million shares was oversubscribed more than 28-fold.

By April, a 1-to-20 stock split resulted in the stock trading at EGP 1.38 instead of EGP 9.

“Strong international appetite for the transaction is simultaneously an endorsement of Cleopatra’s strong growth prospects as well as of Egypt’s healthcare sector and the wider economy,” EFG Hermes Deputy Head of Investment Banking Mohamed Abou Samra said to the local press at the time.

As of July 25, the share price stands at EGP 6.17.  The group has 1.6 billion shares, traded at EGP 0.5 per share. CHG authorized capital is EGP 2 billion. Its paid-in and issued capital stands at EGP 800 million.

CHG prospects almost seem underwritten by an increase in population at 2.2 percent annually and a consumer market accustomed to steady price hikes for medical care. Ever since it became listed, CHG has been working on reviewing potential acquisitions. The group announced their first expansion plans for the first quarter of 2017 including an EGP 300 million to EGP 350 million acquisition of a private hospital in New Cairo. A second investment of EGP 250 million was put up to increase Cleopatra Hospital capacity by 100 beds while a third for EGP 150 million added 40 beds at Al Shorouk Hospital.

Fast-growing sector

On June 2016, CHG implemented an EGP 360 million capital increase promised during the initial public offering process. The group moved forward with a 40 million share capital increase, with each share carrying a nominal value of EGP 9 split between EGP 0.5 par value and a premium of EGP 8.5 with a total issued capital of EGP 100 million.

By the end of 2017, CHG’s EGP 700 million capital increase was 99.81 percent subscribed. The company had applied for EGX approval to issue 1.4 billion new shares to existing shareholders in October for EGP 0.5 per share as it looked to raise its issued capital to EGP 800 million from EGP 100 million.

That same year, the Egyptian Financial Supervisory Authority (EFSA) greenlit Cleopatra Hospital’s acquisition of 46.32 percent of Cairo Specialized Hospital, bringing Cleopatra’s total holdings in Cairo Specialized Hospital to 99.04 percent at the time.

In 2018, Cleopatra pumped in some EGP 1 billion on new acquisitions. It reported a 168 percent y-o-y increase in net profit in the final quarter of 2018 to EGP 90.2 million, up from EGP 33.6 million in the last quarter of 2017.

Revenues for the quarter stood at EGP 394 million, up 27 percent y-o-y from EGP 309.6 million in the same period the previous year.

Higher volumes and favorable pricing supported revenue, and net profit growth concluded a very successful 2018 for CHG with yet another quarter of durable top and bottom-line growth. Cleopatra Hospitals raised its spending rise to EGP 148.6 million in 2018 from EGP 117 million in 2017 to fund capital expenditure in the current high interest rate environment.

In the first months of 2019, CHG signed a long-term lease agreement for Queens Hospital, a 50-bed East Cairo. The facility, located near Cleopatra Hospital, is expected to “serve excess demand” for the firm’s services. This is likely to contribute to the group’s consolidated financials by the second quarter of 2019.

A few months after, CHG also completed the acquisition of El Katib Hospital in Dokki, adding 100 beds to its inpatient capacity. The plans were announced a year ago, and shareholders greenlit the move last December.

On the first quarter of 2019, the group reported a 4 percent y-o-y dip in net profits to EGP 55.1 million compared to EGP 57.2 million a year earlier. Revenues rose 20 percent y-o-y during the quarter to EGP 416 million. The leasing agreement brought CHG’s total number of hospitals to six.

Net income was impacted by an increase in impairments “primarily related to claims made in 2016 and 2017. The company said it is “actively working to establish a more structured revenue cycle management framework” that will include moving away from weak credit profile clients and improving the group’s claims collection procedure.

Further expanding its portfolio, CHG moved in June to acquire a majority stake in one of Egypt’s largest IVF centers. CHG did not provide the name of the target company or the size of the stake but said that it expects to close the transaction later this year.

In the same month, CHG signed an agreement with Al Taaleem Management Services to set up a joint venture that will rebuild, develop, operate, and manage Al Nahda Hospital. The JV will be 90 percent owned by CHG, with the remaining 10 percent held by Al Taaleem, the owner and operator Nahda University in Beni Suef.

In July, private equity fund Actis received approval from the Financial Regulatory Authority to take over the management of Creed Healthcare Holdco from private equity giant Abraaj. Creed Healthcare owned a 69 percent stake in CHG. However, Actis’ takeover will reportedly not change the ownership structure of CHG.

A few days later, Creed Healthcare and its subsidiary, Care Healthcare, divested 31.5 percent stake in Cleopatra Hospitals. It sold 503 million shares at EGP 5.2 a share in a transaction worth EGP 2.6 billion — bringing its ownership stake in Cleopatra down to 37.9 percent.

By mid-July, Actis made official its takeover in management at Abraaj Private Equity Fund IV (APEF IV) and Abraaj Africa fund III (AAF III) in a landmark transaction for private equity in the region. The deal includes investments in 14 portfolio companies across the two funds and brings Actis’ assets under management to $12 billion. APEF IV’s $1.6 billion portfolio includes CHG and Nahda University in Egypt.

Looking ahead, CHG is still committed to expansion plans. Within the next two years, the company plans to invest EGP 1.5 billion to double the number of hospital rooms to 1,200 and open two polyclinic facilities with primary care doctors and specialists yearly by 2023.

“In the coming months, we will continue to explore new potential locations, in line with our plan to inaugurate two facilities per year over the coming five years. We will also press on with the group-wide renovation works and aim to roll out the new hospital information systems at Cleopatra hospitals. This will see all the group’s East Cairo facilities operating under the new, integrated framework allowing us to enhance efficiency further and further improve the quality of care across our hospitals,” Chief Executive Officer Ahmed Ezzeldin said, according to the company’s June earnings statement.