Downgrade for shares of Al Noor Hospitals owner Mediclinic

Shares of Mediclinic, the South African healthcare group that owns Abu Dhabi’s Al Noor Hospitals, have been downgraded by JP Morgan Cazenove, on the back of changes to the healthcare insurance system in the capital and the fall in the value of the pound.

In a note published on Thursday, JP Morgan analysts downgraded their outlook for Mediclinic shares to neutral from overweight.

The previous rating meant that the stock was expected to outperform the sector, having risen by more than 39 per cent so far this year.

Last month, the Health Authority Abu Dhabi announced that it was reducing its insurance coverage for Emiratis and expatriates and their families covered by Daman Insurance’s Abu Dhabi Basic Plan. Under the new rules, Emiratis will need to pay 20 per cent of the cost of treatment at private hospitals. Previously, the plan fully covered the cost of all procedures at private health centres. This has now been reduced to 80 per cent.

For expats, changes to the Abu Dhabi Basic Plan mean that workers over 40 may have to pay up to 50 per cent of their policy’s premium.

Since the UK voted to leave the European Union in a referendum two weeks ago, the pound has fallen in value by more than 13 per cent to its lowest level in more than 30 years against the US dollar.

Although virtually none of its business earnings are in sterling, Mediclinic is listed on the London Stock Exchange and so its share price is denominated in sterling – making the stock more attractive.

“While a further weakening of the GBP [sterling] is clearly possible, in our view most of the likely near-term impact has ­already occurred,” said Alex Comer, an equities analyst at JP Morgan. “Moreover, while difficult to quantify, we are nervous regarding recent announcements related to reductions in the level of reimbursement for Thiqa-insured Emiratis and also expats covered by Daman’s Basic Insurance Plan.”

The move comes after Investec also reduced its rating for Mediclinic to “hold” from “buy”.

EVA Dimensions gradually reduced its rating from “overweight” to “hold” to “underweight” since May.

In May, Mediclinic reported a year-on-year decline of 27 per cent in group earnings to £177 million (Dh844m) in the 12 months to the end of March, which it attributed to increased competition and regulatory pressures across its international operations.

Mediclinic’s UAE operations contributed £57m to the group’s underlying earnings, compared with £42m during the previous period.

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