Hikma Pharmaceuticals Plc (LON: HIK) – Strengthening foothold in Europe and expanding into new markets.

Hikma Pharmaceuticals PLC (LON: HIK) is an FTSE 100 listed 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, HIK operates through four reportable business segments: Injectables, Generics, Branded and Others. It has a strong pipeline with over 500+ products, along with that, the Company has 30 US products under development.

On 6 August 2021, HIK would publish its H1 FY2021 results.

Recent trend of dividend payments

  (Data Source: LSE Website, Research done by Kalkine Group)

The chart above demonstrates the consistent dividend payment done by HIK from FY2017 to FY2020. The last dividend of FY2020, USD 0.34 per share, was paid on 26 April 2021 (final dividend). It had an ex-dividend date of 18 March 2021.

The current dividend yield of HIK at about 1.50% remains above the UK 10-year bond yield at about 0.5750%.

Growth Prospects

• Continued strategic progress and strong core financials: The Company expanded its portfolio during the pandemic with new launches. It has also met the demand for essential medicines during the pandemic. HIK strives for developing its pipeline through partnerships and research and development.
• Strong presence in the US: The Company has a widespread presence in the US. It is the third largest manufacturer of injectables and among the top ten generic companies in the US.
• FDA approval of KLOXXADO: HIK has received FDA approval for KLOXXADO, a higher dose naloxone hydrochloride nasal spray as part of increased efforts to control surges in opioid-related deaths.
• New launches in the US injectables portfolio: The Company launched 20 products in the US injectables market in the last one and a half years. It is also planning to launch a further 10 to 15 products in that market in a major expansion drive.
• Expansion into new markets: The Company plans to expand substantially into new markets. It launched 33 products across markets and filed for 160 more products. It could help the Company to sustain its growth.

Key Risks 

• Change in industry dynamics: Due to economic factors or political actions, the commercial viability of the industry could change. It could affect the growth and expansion of the Company.
• Product pipeline: Development of products that fail to cater to the market needs may affect the margins of the Company.
• Delay in launching products: If the expected product is not completed and launched in time, there could be cost overruns as well as reputational loss for the Company.
• Product quality and safety: The Company is exposed to the risk of maintaining compliance with current Good Practices for Manufacturing (cGMP), Laboratory (cGLP), Distribution (cGDP), and Pharmacovigilance (cGVP) by staff.
• Cyber threats: There is a risk that competitors and others could steal sensitive research data through cyber-attacks. It could hamper the prospect of the products as well as lead to financial losses.
  

Now we will analyse some key fundamental and shareholders statistics of Hikma Pharmaceuticals Plc.

Trading Statement (released on 30 April 2021)

• HIK demonstrated an increasing demand for the Covid-19 related products and a good performance of the new launches in the Generics business segment.
• For the Injectibles segment, the Company had made accelerated progress with regards to the expansion of the global injectables pipeline. It announced the expansion of the licencing agreement with Melinta in the MENA region and the licencing of Combogesic®IV from AFT Pharmaceuticals.
• The Branded business segment had progressed well with a focus on increasing the market presence of chronic care in Saudi Arabia.
• Also, HIK launched the first locally manufactured oral oncology product in Algeria.
  

Financial and Operational Highlight (for the year ended 31 December 2020, as of 25 February 2021)

(Source: LSE Website)

• Driven by growth in all businesses, revenue was up 6% YoY.
• This revenue growth and strong performance in Generics and Injectables resulted in 11% YoY surge in core operating profit.
• The Company had a robust balance sheet with net debt of USD 605 million as of FY2020 and low net debt to core EBITDA of 0.9x.
• Also, the investments in research and development represented almost 6% of revenue in 2020, having the growing pipeline of complex products.
  

Financial Ratios (H2 FY2020)

Share Price Performance Analysis

 (Source: Refinitiv, Research done by Kalkine Group)

On 29 July 2021, at 8:15 AM GMT, HIK’s shares were trading at GBX 2,607.00, down by 0.87% against the previous day closing price. Stock 52-week High and Low were GBX 2,768.00 and GBX 2,125.00, respectively.

On a daily chart, HIK’s price is sustaining above 20-day EMA of about GBX 2,589.00 and 20-day SMA of about GBX 2,604.00, indicating the possibility of an upward movement. The MACD line is trading above the centreline, and however, forming a negative crossover with the signal line.

In the last three months, HIK’s’s stock has delivered a decent positive return of ~13.12%. Also, it has outperformed the FTSE All-Share Pharmaceuticals and Biotechnology index with a return of around 8.18% and the FTSE 100 index with a return of about 0.76%.

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

Business Outlook Scenario

HIK delivered a resilient performance so far in FY2021, with launch of more than 30 products across markets. It has launched the generic version of Advair Diskus and received FDA approval of KLOXXADO. It expects global Injectables core revenue to grow in the mid-single digits. The Company could benefit from its strong presence in the US, FDA approval of KLOXXADO, continued strategic progress and solid core financials, new launches in US injectables portfolio and expansion into new markets for the rest of FY2021 and beyond.

Considering the Company’s solid growth opportunity, its strong financials, its expansion into new markets , the better profitability and liquidity of the business than the industry, and support from the valuation as done using the above method, we have given a “BUY” recommendation on Hikma Pharmaceuticals Plc at the current price of GBX 2,607.00 (as on 29 July 2021 at 8:15 AM GMT), with lower-double digit upside potential based on 22.87x Price/NTM Earnings (approx.) on FY21E earnings per share (approx.).

*Depending upon the risk tolerance, investors may consider unwinding their positions in a respective stock once the estimated target price is reached. Resistance level 2 is at 52 week high and if Hikma Pharmaceuticals Plc attains momentum or breach it, then target price as per valuation table could be seen in the near term as per technical chart analysis.

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

*The dividend yield is subject to change as per the stock price movement.

*The reference data in this report has been partly sourced from Refinitiv.

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