Egypt’s healthcare sector will soon face challenges due to the fallout from the coronavirus (COVID-19) pandemic, given the basic nature of health care services, Renaissance Capital believes. It added, however, that the long-term vision for the country’s health care sector remains good.
“We believe that the drop in stock prices since the beginning of the year provides an attractive investment opportunity,” the company said, adding, “We also believe that the pharmaceutical sector will be the least affected, if at all, during the pandemic.”
The company also said: “Among the health care sector companies that we follow, we prefer the share of the Cleopatra Hospital Group Company, as we expect the group to be in a good position to withstand the pandemic as well as with limited risks.”
Based on their calculations, Renaissance Capital anticipates that government hospitals, not including those belonging to the armed forces, have approximately 8,400 intensive care beds. This takes into account, also, that all confirmed coronavirus cases in Egypt are dealt with by the Ministry of Health.
Assuming 20% of the active cases are transferred to intensive care units, about 42,000 active cases will be required for coronavirus infections, before the government involves private sector hospitals to help. As of 28 April, Egypt had 3,339 active cases of coronavirus infections.
Despite the uncertainty regarding the short term impact of sales volumes, demand for health services must recover at a faster rate due to the basic nature of health care services.
With additional support from accumulated demand, the company anticipates that the second quarter (Q2) will be the weakest quarter in terms of patient influx.
There will be an added decrease of 25%-35% for hospitals and laboratory services, with gradual recovery in Q3 before returning to pre-pandemic levels in Q4.
Renaissance Capital said that the pharmaceutical sector’s sales volume will be the least affected by the pandemic. It added that it does not rule out a growth in the volume of pharmaceutical sales during the crisis due to the increase in drug stocks by users.
To reflect the uncertainty on whether sales volumes will be affected among healthcare sector companies it follows, Renaissance Capital used three scenarios, notably basic, worse or better, to capture patient flow levels during 2020.
The company landed at a base case scenario revealing that the current market price reflects a decrease of between 30% and 50% in the final free cash flow (FCF) estimate. It believesthis is unlikely given the strong fundamentals of Egypt’s healthcare sector.
