O Bank of America (BofA) raised the Fleury (FLRY3) from “underperform” (expected performance below the market average) to “buy”. The target price for the share was also changed, from R$18 to R$23.
Four factors led to the change of the thesis, according to the institution:
- relatively strong short-term operating results;
- valuation discounted;
- upside potential from earnings review; and
- synergies to be captured via mergers and acquisitions with Hermes Pardini (PARD3).
According to BofA, the set of positive factors outweigh the long-term risks.
“While there are risks of competitors entering and/or reinforcing their diagnosislike big hospitalswe see Fleury’s reaction in accelerating the pace of diagnostic acquisitions as positive, which can mitigate competition in the long term”, say analysts at the institution, in a report published this Friday (23).
In a session of sharp decline for the Brazilian stock market, Fleury’s shares advanced 2.81% around 3:10 pm, quoted at R$ 22.70 each.
BofA estimates a CAGR (compound annual growth rate) of organic net revenue for 2021-24 of 11%, in addition to a sustainable Ebitda margin at 27%.
The reason for BofA’s more constructive view of the margins is the Marcelo Magalhães Laboratoryconsolidated in June 2022 and with margins similar to those of the Fleury brand (ie, above 30%).
In addition, BofA anticipates that the business combination with Hermes Pardini will add value (potential synergies of BRL 160-190 million per year in recurring Ebitda), reducing the current multiple of 14 times P/E (price over earnings) to 2023 for one valuation attraction of 11 times.
To top it off, the possibility of a capital increase should improve trading volumes, reduce leverage and boost pipeline aggressive M&A.
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