NMC Health (NMC) is expanding into Saudi Arabia through an initiative which will see it more than double capacity in the long-term and home care market and potentially add $10 million (£7.6 million) to earnings.

Shares in the UAE-focused private healthcare operator trade 2.5% higher at £13.60, valuing the business at £2.5 billion, as it outlines plans to buy 70% of a hospital in the east of the country and create a start-up business in the west.

NMC's move comes after an acquisitive 2015 in which it acquired Provita, Americare and Dr Sunny Healthcare for a total of $261 million (£199 million).

'This represents NMC’s first foray into Saudi Arabia and an expansion of its long-term care vertical, now a regional leader in the market,' writes analyst James Vane-Tempest at investment bank Jefferies

'Saudi Arabia was highlighted as an area of interest at the time of the Provita acquisition in 2015.

'NMC commented that its strategy includes the potential for investment and expansion in the central region of Saudi Arabia, including the capital Riyadh. With over 35% of intensive care unit beds currently occupied by long-term patients, the company believes the market provides a compelling opportunity for the private sector.

'Saudi Arabia also has a larger population than the UAE, which combined with on-going government efforts to encourage privatization, enhances its attractiveness.'

The deal will add 260 beds to NCM's capacity in the long-term and home care market, taking its beds in the sector to 406. Alongside its activity in other verticals – including maternity, fertility and operations –  NMC will increase its capacity to a total of 1,135 beds.

Management at NMC say early expectations are that the two new Saudi projects may add $10-15 million to its earnings before interest, tax, depreciation and amortisation (EBITDA) over the next few years.

In the east of Saudi Arabia, it is paying $45 million to buy 70% of the As Salama Hospital in Al Khobar, which has a current capacity of 140 beds. Management says EBITDA from the facility should reach around $5 million by 2017, with a growth rate of between 10% and 15%.

In the west of the country, NMC has set up a new business which is investing a total of $13 million alongside developers to build and lease back a 120-bed complex in Jeddah. Management is budgeting EBITDA at the site to hit $5 million in 2017 and $10 million a year for the following three years.

Guidance for earnings before interest, tax, depreciation and amortisation has been upgraded by the company from $290 million to $300 million for the 2017 full year.

‘This geographic expansion into Saudi Arabia is a major milestone for NMC that carries tremendous strategic significance and expands the group’s long-term growth prospects substantially, as we emerge as the largest regional provider in this highly specialised area of care through our top-in-class offering, track record and brand,' said NMC deputy CEO Prasanth Manghat.

Announced alongside the Saudi expansion plans, NMC's Provita unit started  operations at 26 acute care beds in the NMC Royal Super Specialty Hospital in Abu Dhabi.

Issue Date: 30 Aug 2016