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Fleury share (FLRY3) gets even cheaper with Hermes Pardini (PARD3); will euphoria last? – Money Times

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Fleury
Fleury and Hermes Pardini shares soar with merger announcement; business is positive, but euphoria should not last long (Image: Fleury/Youtube)

Fleury (FLRY3) and Hermes Pardini (PARD3) signed an agreement to create one of the largest healthcare companies in Brazil, with 87 service units in 13 of the country’s main economic centers and 6,600 customers lab-to-lab distributed across the national territory.

The combined gross revenue of the two companies, considering the year 2021, will reach R$ 6.4 billion.

The business was well accepted by the market. At around 2 pm, the actions of the Fleury shot up 15%, while the Hermes Pardini was up 20.38%.

The transaction provides for each share of the pardini receipt of R$ 1.2135 common share issued by Fleury and a portion of R$2.15 in cash, totaling the value of the deal at R$2.5 billion.

O BTG Pactual calculates that the pardini is being valued at R$2.51 billion, or a 14% premium over yesterday’s close.

Analysts Samuel Alves, Yan Cesquim and Pedro Lima rated the deal as positive.

According to the trio, in addition to the complementary geographic exposure (the Fleury has considerable operations in São Paulo and Riverwhile the Hermes Pardini is focused on the states of Minas Gerais and Goiás) the business improves its positioning to negotiate commercial conditions with national hospital operators.

“However, we also have mixed feelings about today’s announcement as the potential capital increase is expected to be highly dilutive (more than 15% of NewCo’s stake). We hope that the company will clarify the use of the resources of this potential share offering during today’s conference call”, he adds.

synergies

O BTG estimates that synergies could reach R$160 million to R$190 million in incremental Ebitda per year, representing 10% of the new company.

There are three main pillars behind the expected synergies, he points out:

  • market consolidation;
  • operational, logistics, production and cost efficiency (incorporating the best practices of each company);
  • leverage its portfolio through the unification of products and medical teams.

Good time to buy Fleury and Hermes Pardini?

In the opinion of analyst Flávio Conde, from Raise Investmentsthe deal was unexpected, since Fleury and Hermes Pardini lead the sector, together with Dasa.

For him, the two companies are poorly priced. “The recommendation is to buy. The business is very positive,” he says.

Conde recalls that the shares plummeted due to health plans, which affects the revenues of these companies.

“The shares that were already cheap and will become even cheaper”, he says.

However, he believes that the euphoria seen in stocks today should be short-lived. “Investors are not buying stocks that depend on individual consumption,” he says.

“These are two well-managed companies, with high margins, and that will try to cut costs via synergy”, he says.

O BTG states that the assessment of Fleury is indisputably cheap, “but we believe that an effective reclassification now will depend on capturing these synergies and the capital allocation strategy of the Fleurywhich is currently not fully understood by investors and should remain in the spotlight (in the wake of the next increase of nearly R$1 billion)”.

“While we await further clarity on capital allocation, we maintain our neutral rating for Fleurybut now definitely with a positive bias”, he adds.

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