Hikma Pharmaceuticals PLC (LON: HIK) – 154 launches and 201 approvals during 2020.

Hikma Pharmaceuticals PLC (LON: HIK) is a United Kingdom-based pharmaceuticals and biotechnology Company, specializes in the business of developing, manufacturing, and marketing a portfolio of branded and non-branded generic medicines. Moreover, the Company is creating quality medicines for over 40 years. It has a stronger presence across three broader geographic regions - the United States (US), the Middle East & North Africa (MENA) and Europe. The Company bifurcates its revenue into four segments – Injectables, Generics, Branded and Others. HIK is listed on the FTSE 100 index.

 (Source: Company Presentation)

Recent Trend of Dividend Payments

(Source: Company Website)

The Company has declared a final FY20 dividend of 34 cents per share, taking the total FY20 dividend to 50 cents per share. Moreover, HIK will pay a proposed final dividend on 26 April 2021, with an ex-dividend date of 18 March 2021. The total dividend for FY19 was 44 cents per share.

Growth Prospects and Risk Assessment

The Company would continue to make increased investments towards Research & Development to develop its innovative pipeline. The operational excellence is driven by several factors such as diverse portfolio, the flexibility of its manufacturing capabilities and the strength of commercial & distribution channels. Moreover, it continued to see good demand for marketed products and delivering strong performance from new launches.

 (Source: Company result)

HIK had 154 launches and obtained 201 approvals during 2020. Moreover, it has submitted around 377 regulatory filings to accelerate the progress of its product pipeline.

However, there are certain potential risks that can impact the business, such as credit risk, liquidity, reputation damage, risk related to compliance & ethics, cyber-security, technology & infrastructure risk, and product quality & safety. Moreover, HIK had a risk of failure to generate potential revenue from the recent launches, which may hamper the growth prospects.

Industry Outlook Dynamics

According to Globe Newswire’s latest report, the market size of the global generic sterile injectables industry was USD 68.7 billion during 2019. Moreover, the industry is expected to grow at a CAGR of 11.2% and reach USD 196.2 billion by 2029. The rising chronic illnesses such as cancer across the world would increase the demand for sterile injectables drugs in the near term.

After understanding the industry dynamics, we will analyse some key fundamental and shareholders statistics of Hikma Pharmaceuticals Plc.

A Glimpse of Business Segments (FY20)

Financial and Operational Highlights (for the year ended 31 December 2020 (FY20), as on 25 February 2021)

(Source: Company Website)

• The Company delivered a strong financial performance, with an increase in core Group revenue of 6% YoY and core operating profit of 11% YoY.
• It has shown growth in all three business, with strong growth in Generics and Injectables' profit and a growing pipeline of complex products.
• Hikma saw a strong cash flow from operating activities, supported by the continued investment in R&D.
• The Company witnessed a healthy balance sheet, with net debt of USD 605 million and low leverage at 0.9x net debt to core EBITDA.
• As per the business segment, Injectable business achieved a double-digit growth core operating profit; Generics business has delivered significant improvement in core operating margin, due to a good performance from in-market products, the strength of new launches and the enhanced focus on customer service levels; Branded division achieved good growth in revenue, driven by a strong recovery in Algeria.
• Moreover, in 2020, Other businesses have contributed revenue of USD 7 million, with zero operating profit.
• The Company is increasing the demand for essential medicines, which is used in the treatment of COVID-19.
• It had launched 154 new products across the markets and received US FDA approval for generic Advair Diskus®.
• The Board has proposed a final dividend per share of 34 cents, bringing the 2020 total dividend per share to 50 cents.
• Further, the capital expenditure was ahead of expectations, with adding new technologies for the Injectables and Generics businesses. It expects Group capital expenditure to be between USD 140 million and USD 160 million in 2021.
• On 31 December 2020, the net assets increased to USD 2,148 million as compared with the previous year (31 December 2019: USD 2,129 million), with net current assets of USD 894 million. The increase was primarily driven by a change in the debt maturity profile as a result of an increase in inventory levels and the repayment of the Eurobond during the period.
• Looking ahead, in 2021, the Company expects Injectables revenue to grow in the mid-single digits and Injectables core operating margin to be between 37% and 38%. Generics revenue for FY21 is expected to be in the range of USD 770-810 million, while it also expects the core operating margin to be approximately 20%. Moreover, on a constant currency basis, Branded revenue is expected to grow in the mid-single digits.
• Furthermore, it expects the core effective tax rate to be between 22% and 23% and the Group net finance expense to be around $50 million.

Financial Ratios (FY2020)

Share Price Performance Analysis

On 04 March 2021, at the time of writing (before the market close, at 9:35 AM GMT), Hikma Pharmaceuticals PLC shares were trading at GBX 2,217.00, down by 0.80% against the previous day closing price. Stock 52-week High was GBX 2,768.00, and Low was GBX 1,596.00, respectively.

From a technical standpoint, 14-day RSI (33.30) supports an upside potential.

In the last one year, Hikma Pharmaceuticals PLC’s stock price has delivered a return of ~22.56% as compared to ~0.75% return of FTSE 100 index and a negative ~15.34% return of FTSE All-Share Healthcare Equipment & Services index, which shows that the stock has outperformed the benchmark index and the benchmark sector.

Valuation Methodology: Price/Earnings Approach (NTM) (Illustrative)

Business Outlook Scenario

HIK had delivered resilient financial performance during FY20 across all business segments. Moreover, HIK had achieved substantial growth in the total FY20 dividend from FY19 levels, illustrating cash generative nature and growing optimism in its portfolio. Subsequently, the Company provided FY21 financial guidance for its three business segments – Injectables, Generics & Branded.

HIK had anticipated its injectables and branded division to show an increase in revenue of mid-single digits during FY21, while the generics division revenue would be expected to be ranging from USD 770 million to USD 810 million during FY21. Furthermore, the core operating margin for the injectables division would likely to fall between 37% and 38%. HIK had anticipated FY21 capital expenditure between USD 140 million and USD 160 million. Overall, HIK is well-positioned to deliver sustainable growth in the medium term.

 (Source: Company Presentation)

Considering the continued strategic progress, achieved strong Group core revenue and profit growth, process improvements across the manufacturing sites, expanded the portfolio with successful new launches, strengthening foothold in Europe and expanding into new markets, improving access to biosimilars in MENA, delivering growth in Tier 1 markets and benefitting from strong commercial capabilities, achieved investment-grade status from Standard & Poor’s and Fitch, sustainable business model, robust cash generation, improved profitability margins, positive working capital movements, consistent dividend payout trajectory from the last 6 years, and support from the valuation as done using the above method, we have given a “BUY” recommendation on Hikma Pharmaceuticals at the current price of GBX 2,217.00 (as on 4 March 2021, before the market close at 9:35 AM GMT), with lower-double digit upside potential based on 19.58x Price/NTM earnings (approx.) on FY21E earnings per share (approx.).

*All forecasted figures and Peer information have been taken from Refinitiv, Thomson Reuters.

*Dividend Yield may vary as per the stock price movement.

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