UBS BB raises Rede D'Or target price to R$ 48

UBS BB raised its target price on shares of Rede D'Or to R$ 48 from R$ 45, maintaining a buy rating. The bank stated that the company trades at discounted multiples compared to its long-term growth potential.

According to the bank, the current market valuation primarily reflects the hospital operation. It leaves out strategic assets such as health insurance operations, synergies with SulAmérica, and the joint venture with Bradesco Saúde. Revenue growth continues to be driven mainly by revenue per patient, which accounts for about 60% of revenue expansion due to higher procedure complexity.

UBS BB expects the hospital EBITDA margin to expand from the current 24.5% to around 28% in the long term as recently opened hospitals mature. In addition, since the 2022 acquisition of SulAmérica, IBNR claims reserves have reached 98 days, compared to the industry average of 30 to 40 days and SulAmérica's historical average of about 30 days.

The bank estimates this reserve buffer at approximately R$ 4.8 billion, or R$ 2.9 billion after taxes. If provisions gradually return to historical levels, consolidated adjusted EBITDA over the last 12 months would increase by approximately 5%, or about R$ 650 million, an upside not included in the baseline forecast.

The new target price of R$ 48 implies a multiple of 14.2 times projected 2028 earnings, based on a discounted cash flow model using a cost of equity of 15.5% and a perpetual growth rate of 5%.