Health Management International Ltd (SGX: 588) or HMI for short, announced a joint bid to privatise the company for approximately S$611 million or S$0.73 per share. Should shareholders accept the privatisation offer? Let’s explore.
Offer price vs historical market price
The offer price of S$0.73 per share represents a 27.8% premium over 12-month volume-weighted average price and a 14.1% premium to the last trading day price. In addition, the closing share price of HMI only exceeded the offer price on one trading day back in 2016.
The chart below shows HMI’s share price since it listed back in 1999.
Source: HMI presentation for privatisation offer
Based on the historical market price, the offer price does indeed seem fair and allows shareholders to realise a good selling price, relative to historical and current market prices.
Investors should also consider the company’s fundamentals when deciding if the offer price is reasonable.
Based on its last financial year ended 31 June 2018, the company had a profit after tax and minority interest and EBITDA (earnings before interest, tax, depreciation, and amortisation) of RM60.6 (S$19.9 million) and RM115.2 million (S$37.8 million), respectively.
Based on the last full-year results, the offer price translates to a price-to-earnings ratio of 30.7. The offer price also gives the company an enterprise value of around S$695 million. That translates to an EV-to-EBITDA multiple of 18.3 times. The table below compares these multiples against industry peers:
Source: Author’s compilation of data from SGX.com
Based on a comparison against a selection of its healthcare peers, the offer price does look reasonable. The price-to-earnings ratio is higher than the other healthcare peers and its EV-to-EBITDA multiple is higher than three of the four companies I compared it against.
Only Raffles Medical Group (SGX: BSL), at its current share price, sports a higher EV-to-EBITDA multiple. However, this is likely due to anticipated growth from Raffles Medical’s two China hospitals.
The Foolish bottom line
Based on historical prices, the privatisation offer price for HMI does look fair. It represents a premium to both its last traded price before the offer was announced and to the weighted six-month average price. On top of that, the offer price represents a higher price-to-earnings and EV-to-EBITDA multiples than what most other healthcare shares currently have.
Shareholders, in my view, should accept the offer as it provides an opportunity to exit their position at a fairly decent valuation.
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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Singapore contributor Jeremy Chia owns shares in Raffles Medical Group. The Motley Fool Singapore has recommended shares of Raffles Medical Group and Singapore O&G.