Jefferies downgrades NMC Health, ups Hikma

(Sharecast News) - Jefferies has adopted a more cautious approach to blue chip NMC Health, cutting its rating to 'underperform' over a range of concerns, including corporate governance.The bank said that NMC, a healthcare provider based in the United Arab Emirates and listed in London, was "a well-loved story".It continued: "Attractive healthcare fundamentals in the UAE, expansion of the highly profitable IVF segment and close ties to the Saudi government ahead of anticipated privatisation, all translate into double-digit earnings growth on which there is little to no to no tax."But Jefferies had "concerns", including "increasing risks if the company continues on the same path, down which it looks to be accelerating with the recent Aspen and GOSI deals. Hence we believe the market is overestimating the value-creation potential."Other concerns flagged by Jefferies include NMC's expansion into Saudi Arabia, where there is higher reliance on government pay, declining expat population as well as competition from established players.The analysts also highlighted corporate governance concerns with "an increasing focus on EBITDA in both STIP and LTIP and the removal of EPS to be alarming, especially given net income as a percentage of EBITDA has declined from 78% to 53% in 2012-17" and hoped measures will be "addressed by the remuneration committee".Jefferies has cut its price target for NMC to 2,940p from 3,411p.The analysts took a more positive view of fellow healthcare business Hikma Pharmaceuticals, however, increasing its recommendation on the FTSE 250 drug manufacturer to 'buy'.The bank argued that the turnaround in US generics was "impressive" and that injectable margins were "more resilient" that the consensus currently believed."Material upgrades to guidance through the year have been impressive, with highlights being the robust profitability in injectables demonstrated in the first-half results, but also the turnaround in the US generics business, with new 'low teens' guidance implying a particularly strong second half."We expect that momentum can be carried into 2019, where tailwinds from new launches, especially Zytiga, should benefit."Jefferies has a price target of 2,000p on Hikma, which was founded in Jordan and still has core central function offices in Jordan but has moved its head office to London.Shares in NMC were down 80p or 2% at 3,520p by 2pm GMT on Tuesday, while Hikma was 1% higher at 1,735p.