Answering your questions on the stock and its tradable right
By: Amr El Alfy, MBA, CFA
Looking Back — and What’s Changed
About a year ago, we advised investors to avoid City Lab [CILB] because of its small size and a strategy that is yet to be proven. Fast forward to today, and the company—now called Premium Healthcare Group [PHGC]—is undergoing a significant transformation. You can think of it as “City Lab 2.0.”
So, what’s happened since then?
In November 2024, PHGC shared a study outlining its expansion plans in Egypt as well as outside Egypt. It’s targeting Saudi Arabia, the UAE, and Jordan. We saw two main parts to this plan:
- Local expansion: By acquiring other operating businesses including labs in Egypt.
- Regional expansion: Through partnerships with labs in each new market.
And now, PHGC is moving forward with that plan through a massive capital increase—growing its paid-in capital by 29 times, from EGP81.5 million to EGP2.36 billion. Most of that increase is coming through a debt-to-equity swap.
What’s Behind the Capital Increase?
Over the past year, PHGC acquired several businesses. It paid for some in cash, but the rest (worth EGP1.32 billion) was recorded as “dues to related parties”—essentially money it owes to the sellers of those businesses.
To settle that debt, PHGC is issuing new shares. The sellers will receive PHGC shares in return for their ownership in the businesses acquired. So instead of being creditors, they’ll now become shareholders.
Why Investors Are Asking Questions?
This capital increase is huge—and it changes the game for current and potential investors. Many of you have asked whether you should participate or not. Before you decide, here are a few key points to consider.
The Most Important Question: What If I Don’t Subscribe?
If you’re eligible to participate in the capital increase but choose not to, your position will likely take a big hit.
Here’s why:
The number of new shares being issued is 28 times the existing number, and they’re being offered at just 10% of the stock’s market price before the ex-right date.
So, you’re left with two choices:
- Subscribe to the capital increase to protect the value of your investment.
- Sell your rights, but keep in mind those rights have dropped about 70% since they started trading. You’d be selling at a steep loss.
But What If My Portfolio Is Already Down?
Many shareholders are seeing losses in their portfolio. But those losses are likely due to the drop in the value of the rights—not necessarily the stock itself.
Here’s how to think about it:
- You might be up on the PHGC shares you originally bought.
- But you’re probably down on the PHGCr rights you received.
To avoid locking in those losses, subscribing is your best option—it helps protect the total value of your holdings.
What Are the Risks?
There are a few important things to keep in mind:
- PHGC is still listed on the SMEs stock market (formerly Nilex), which is more volatile and less liquid than the EGX main board.
- The company plans to move to the EGX after this capital increase—but it’s unclear how the stock will perform post-transfer.
The owners of the acquired businesses (who are subscribing with their dues) will own most of the new shares. While 25% of their shares will be locked up for 2 years, they’re free to sell the remaining 75%, which could pressure the stock price when those new shares start trading.
So Why Is PHGC Raising All This Money?
The simple answer: to fund its expansion strategy.
Here’s the breakdown, based on PHGC’s 2024 financial statements:
- EGP1.32 billion (58%) is being paid in kind—by settling the money owed to sellers of the acquired businesses.
- EGP963 million (42%) is being raised in cash—from PHGC’s existing shareholders who choose to subscribe.
Key Dates to Remember
- 6 May 2025: PHGC traded ex-right (buying the share no longer comes with the right to subscribe).
- 8–29 May 2025: The tradable right PHGCr is being traded on the market.
- 8 May – 3 June 2025: Capital increase subscription window is open.
Can You Make a Profit by Buying the Rights Now?
To answer that, compare what you’d pay (right + subscription cost = EGP0.11/share) to the market price of PHGC.
- As of last Thursday, PHGCr was “in the money”—meaning you could profit if PHGC stays above EGP0.11/share.
- If the right’s price increases, the profit margin narrows.
It’s key to monitor the total payoff of the right, not just its market price.
Your Options — Based on Your Situation
You can also download this sheet to model different scenarios based on your own cost basis.
If You Bought Before 6 May (e.g., cost basis = EGP1.04/share)
- You now have rights equivalent to 28x the number of shares you had.
- You’re likely up 93% on your shares, but down 69% on the rights—net portfolio down ~49%.
- Recommended: Subscribe to reduce your cost to EGP0.132/share.
- Break-even: PHGC would need to drop over 48% for you to start losing money.
If You Bought After 6 May (e.g., assuming cost basis = EGP0.150/share)
- You don’t have any rights.
- You’re likely up ~70% on the stock.
- Recommended: Consider taking profit if you’re happy.
- Break-even: PHGC would need to drop over 41% for you to start losing.
If You’re Not a Shareholder (cost basis = EGP0.010/right)
- You can buy PHGCr and subscribe at EGP0.10/share.
- If you do, you’d be up ~132% on the portfolio.
- Recommended: This could be a good trade if PHGC stays above EGP0.11/share.
- Break-even: PHGC would have to drop more than 57% for you to start losing money.
What About the Company’s Valuation?
We haven’t done a full valuation exercise yet, given PHGC is still on the SMEs board and the performance of the merged group isn’t fully known.
But we do know this:
- PHGC’s 2024 consolidated net earnings = EGP241.5 million
- At EGP0.255/share, PHGC’s market cap = EGP6.03 billion → P/E = 25x
- That’s much higher than its peer, IDHC, which trades at 10x.
- At EGP0.11/share, the implied P/E is 10.8x—much more reasonable.
Bottom line: The key will be whether PHGC delivers strong growth after the capital increase.
Final Thoughts
Here’s how we’d sum it up:
- Bought PHGC before 6 May? → You should subscribe to protect your investment.
- Bought PHGC after 6 May? → If you’re in profit, consider taking it by selling.
- Not a shareholder yet? → This might be an opportunity if you’re comfortable with risk.
⚠️ Keep in mind: Subscribed shares won’t be tradable right away—you’ll be exposed to market moves in the meantime.
