Analysts have questioned whether tweaks to the accounts are clouding the profitability picture
Analysts have questioned whether tweaks to the accounts are clouding the profitability picture © REUTERS

Short sellers of NMC Health might need a trip to the doctor. Shares in the UK-listed hospital operator jumped 40 per cent early on Thursday as they scrambled to cover positions. Founded by billionaire Bavaguthu Raghuram Shetty, NMC has seen its shares more than halve over the past year. The rebound was amplified by a classic short squeeze.

Questions over NMC’s accounting policies had prompted bears to borrow 14 per cent of shares, the highest proportion in the FTSE 100. On Wednesday night, a report the FT could not verify described competing bids for a big chunk of NMC equity. On Thursday morning, the Gulf-based hospitals group unveiled better-than-expected first-half results.

These suggested NMC is in rude health. Revenues grew 33 per cent in the first half. Ebitda was up 23 per cent, despite a slip in margins. Yet City opinion remains divided; analysts at Jefferies, who first began asking tough questions, have a target price of £20 per share. Goldman thinks £45. The disagreement is a sign of a healthy capital market, perhaps. But if bid rumours turn out to be only that, investors should question the vigour of disclosure rules.

Jefferies does not think there is any risk to NMC as a going concern. But its analysts believe tweaks to the accounts mask falling profitability in the group’s core healthcare business. Reported margins here rose half a percentage point to 31.5 per cent in 2018. Jefferies thinks they actually declined from 26.6 per cent to 26.3 per cent last year, once exceptionals are taken out and appropriate costs added in. Jefferies also says it has uncovered evidence — denied by NMC — that the group may be flattering its cash flows with supply chain financing, noting rising payables. Both could mean a reported net debt to ebitda ratio of 3 times is understated.

If true, that would explain NMC’s industry-leading margins. This was the reason shares, which closed the day at £23, once traded at a significant premium to peers. Stock market regulations on disclosure look like they need a health check, as well as NMC’s accounts.


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