Societe Generale cuts its rating to sell from buy and slashed its price target by 85% following Muddy Waters report
UAE-based NMC Health has received its first analyst downgrade after short seller Muddy Waters Capital published a critical report on the hospital operator in December, sending the stock tumbling 69 percent since then.
Societe Generale cut its rating to sell from buy and slashed its price target by 85 percent, saying that confidence in the operator of the biggest medical network in the United Arab Emirates is “broken” after recent issues around the possible misreporting of stakes.
NMC this week said chairman Bavaguthu Raghuram Shetty will be removed from board discussions after he said he may have misreported the size of his stake.
The company is also asking its main shareholders for clarity on whether they have pledged any of their holdings as collateral, amid speculation in the market they may have faced margin calls.
“Enough is enough,” analyst Delphine Le Louet wrote in a note dated Wednesday. “We cannot invalidate MW’s accounting claims with what we know, while the lack of clarity on the corporate ownership front is unacceptable.”
This week’s events - which also included a possible bid for the beleaguered company - are the latest in a tumultuous few months for NMC. Muddy Waters in December alleged that the company manipulated its balance sheet and inflated the prices of assets it purchased. NMC has said the allegations are false and misleading, and is conducting an independent review.
Shares in NMC fell as much as 11 percent on Thursday and were among the worst performers in the UK’s benchmark FTSE 100 Index. Societe Generale’s 12-month price target of 590 pence implies 31 percent downside to Wednesday’s closing price, and is the lowest by far among analysts tracked by Bloomberg.
The broker is one of only two analysts with a sell rating. Before the Muddy Waters report was published, NMC had 12 buy, 1 sell and 0 hold recommendations, according to data compiled by Bloomberg. It now has 4 buy, 2 sell and 0 hold ratings, with several analysts recently suspending or restricting their coverage on the stock.
“We conclude that a board reset and a full audit are needed to restore investor confidence,” Societe Generale’s Le Louet wrote.