Russians Having Babies at Home Has BofA Backing MD MedicalBy
Weaker currency helps make MD Medical more competitive
Company may consider secondary share sale to fund growth
The number of babies born in MD Medical Group Investments Plc’s private hospitals from Moscow to St. Petersburg rose 25 percent in the first nine months of the year -- catching the attention of investors and brokers including Bank of America Corp.
Business is booming at Russia’s largest private chain of mother-and-child centers as the ruble’s 35 percent slide in the past year makes it less feasible for some of the country’s wealthier women to travel to the U.S., Europe or Israel for maternity care. MD Medical has plans to lure clients by bringing deluxe services to the doorsteps of Russian parents in more of the nation’s 85 regions.
That expansion encouraged Baring Asset Management to keep the company’s London-listed shares in its Russia portfolio. Analysts at five banks including BofA recommend investors buy the stock, which trades at a 21 percent discount to their average 12-month price estimate. MD Medical’s sales increased 35 percent in the first half, and analysts surveyed by Bloomberg project growth above 10 percent in the next two years.
“More Russians are likely to opt for a high-quality domestic option than travel,” Michael Levy, who manages about $80 million in emerging-market stocks at Baring in London, said by e-mail on Oct. 28. “There is a structural under-penetration of private maternity facilities and demand remains strong, given the relatively poor quality of state care.”
The company isn’t the only to benefit even as Russia endures its worst recession since 2009. X5 Retail Group NV, which operates a chain of discount supermarkets, has seen sales grow this year and its shares have soared 70 percent in London.
MD Medical’s stock carries more risks because trading volumes are thin, with no transactions on some days. As waning geopolitical concern over Ukraine helped drive a 6.9 percent advance in the dollar-denominated RTS Index in 2015, MD Medical retreated 4.6 percent.
The stock, which was unchanged on Friday, added 1 percent to $5.25 in London on Thursday, on volume 2 percent higher than the three-month daily average. BofA initiated coverage of MD Medical in September with a bet that the strategy of targeting an under-served health-care niche will spur the share price to $6.4 within a year.
The equity has lagged its peers in part because investors are waiting to see if the company will follow through on a possible additional share sale to boost volumes and fund expansion, Jamie Clark, a London-based analyst at BofA, said in a Sept. 30 report. MD Medical is waiting for the right market conditions to decide whether to pursue the offering, the company said in an e-mailed response to questions on Oct. 28.
The weakened ruble isn’t all good news for MD Medical since it’s driven up the price of importing medical equipment, forcing the business to pass additional costs on to its customers.
Still, with plans to open new clinics in Samara and Nizhny Novgorod along the Volga river as early as April or May, the hospital-operator is betting that wealthier patients won’t want to compromise too much on the quality of maternal care if they opt not to travel abroad.
“Given the wealthy demographic MD targets, the key competitors for its maternity services are private hospitals in Western Europe and the U.S., rather than the public health system in Russia,” Clark said. “Overseas travel has become much more expensive and MD represents good value to patients even after its own price increases.”
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