Four private large portfolio companies comprise 64.1% of GCAP’s total portfolio value. According to the report on Georgia Capital PLC Q20 and 9M20 results, these are:
Healthcare Services (19.6% of total portfolio value) – Healthcare Services business, managed by GHG, comprises three segments: hospitals, clinics and diagnostics. The independent valuation company estimated the fair value range of the business by applying an income approach (DCF) and a market approach (listed peer multiples and precedent transactions). The estimated fair value range was similar under each valuation approach. The valuation was performed as of 30-Jun-20 and is expected to be updated on a semi-annual basis by the external valuation company going forward. The implied LTM EV/EBITDA valuation multiple as of 30-Jun-20 was 12.2x including the impact of IFRS 16. Fair value was assessed at GEL 474 million as of 30-Jun-20, as compared to the value of GEL 178 million allocated to Healthcare Services following the de-listing. As a result, a GEL 296 million value uplift was recorded from the first-time valuation of the business following the GHG Buy-out.
Retail Pharmacy (19.7% of total portfolio value) – The business consists of a retail pharmacy chain and a wholesale business, selling pharmaceuticals and medical supplies. GCAP owns 67% of the business through GHG and the balance is owned by two individual managing partners. The independent valuation company applied a similar valuation approach as for Healthcare Services. The implied LTM EV/EBITDA valuation multiple as of 30-Jun-20 was 8.7x including the impact of IFRS 16. The fair value of GCAP’s holding was assessed at GEL 475 million as of 30-Jun-20 from what were again broadly similar ranges that resulted from each applied valuation approach. Allocated value for the business following the GHG Buy-out was GEL 178 million, resulting in GEL 297 million value creation.
Water Utility (17.1% of total portfolio value) – Water Utility’s 3Q20 performance reflects the decreased consumption of water during lower economic activity during the COVID-19 pandemic and a decrease in energy revenues due to lower water inflows at Zhinvali reservoir. Decreased consumption of water by legal entities led to a 6.8% y-o-y decline in 3Q20 water supply revenues to GEL 35.7 million. However, according to the tariff setting methodology, volume risk does not stay with the company and unearned revenues in the current regulatory period (2018-2020) will be reimbursed through tariff revision in the upcoming regulatory period, effective from 1-Jan-21. As such, Water Utility’s multiple-based valuation, also validated against internally run DCF valuation, implies a 10.0x multiple based on LTM EBITDA of GEL 84.6 million at 30-Jun-20. Negative value creation was GEL 22 million in 3Q20, predominantly reflecting the foreign exchange losses on Water Utility’s borrowings.
Insurance (P&C and Medical) (7.7% of total portfolio value) –The insurance business combines: a) P&C Insurance valued at GEL 140.5 million and b) the newly added medical insurance business acquired as part of the GHG transaction, valued at GEL 44.5 million. P&C Insurance saw a 7% decrease in LTM net income in 3Q20 which led to a GEL 10.3 million decrease in equity value, but was fully offset by the GEL 5.4 million impact of multiple growth (up from 8.0x to 8.3x) and a GEL 5 million dividend payment. The result was GEL 0.1 million value creation. The negative impact of COVID-19 on the business was relatively well-contained, and mainly affected the compulsory border third-party insurance line. Medical Insurance was valued externally, similar to healthcare services and retail (pharmacy) businesses. The implied LTM P/E valuation multiple as of 30-Jun-20 was 8.0x. Fair value was assessed at GEL 44.5 million as of 30-Jun-20, as compared to the allocated value of GEL 16.7 million following de-listing, resulting in GEL 27.8 million value creation.
