Hikma Pharmaceuticals PLC (LON: HIK)

Hikma Pharmaceuticals PLC (LON: HIK) is an FTSE 100 listed United Kingdom-based pharmaceuticals and biotechnology Company, that 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. Moreover, it has a strong pipeline with over 500+ products.

On 24 February 2022, HIK expects to release FY21 results.

Recent Trend of Dividend Payments

HIK had paid an interim dividend of 18 US cents per share attributable for H1 FY21 on 20 September 2021, with an ex-dividend date of 19 August 2021. Moreover, it represented growth of approximately 13% when compared with the prior-year levels.

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

Growth Prospects (also encapsulates details of a trading statement released on 04 November 2021)

• Widespread presence in the US: HIK has a strong foothold in the US as it is the 3rd largest manufacturer of injectables and one of the top 10 generic companies in the region. Moreover, the Company aims to cement its position with the launch of Hikma 503B. Currently, Hikma 503B is registering for state licenses across the US and going to get launched by the end of 2022.
• Expansion in Canada: The Company will complete the acquisition of Canadian assets of Teligent Inc before the end of the first quarter of 2022. Moreover, it will expand its footprints in Canada with a portfolio of 25 sterile injectable products, three in-licenced ophthalmic products and a pipeline of seven additional products.
• Acquisition Benefits: With the acquisition of Custopharm, the Company had strengthened its injectable product portfolio with 13 approved products and additional pipeline products.
• Recent Commercialization: HIK would further cement its position in the US markets by entering into an exclusive license agreement to commercialize Richter's denosumab.

Key Risks

• Federal Reserve Meeting: The latest Federal Reserve Meeting indicated an interest rate hike by March 2022. Thus, it may cause a significant decline in Global Equities.
• API and third-party risk management – The operational performance of HIK might be hampered due to the failure to maintain the adequate availability of supply, quality, and competitiveness of API purchases.
• Acquisition Risk – The Company might not realise expected benefits from acquisitions and divestments.
• Product quality & safety – HIK is exposed to the risk of maintaining compliance with current Good Practices for Manufacturing (cGMP), Laboratory (cGLP), Distribution (cGDP), and Pharmacovigilance (cGVP) by staff.

Key Fundamental Statistics & Shareholding Pattern of Hikma Pharmaceuticals PLC.

Darhold Ltd is the most significant shareholder as it holds nearly 60.00 million shares as of 31 December 2021.  

H1 FY21 Financial Highlights (for the 6-month period ended 30 June 2021, as on 06 August 2021)

(Source: Company Filings)

• Encouraging Financial Performance: HIK’s top-line revenue grew by around 7% and bottom-line profitability rose by approximately 17% during H1 FY21.
• Decent Leverage Position: At the end of H1 FY21, Hikma maintained low leverage with net debt to core EBITDA of 0.9x (31 December 2020. 0.9x).
• Product Launches: The Company launched ~87 new products in H1 FY21.

Financial Ratios (H1 FY21)

Share Price Performance Analysis

(Analysis done by Kalkine Group)

On 27 January 2022, at 09:22 AM GMT, the shares were trading at GBX 2,016.00, down by around 0.49% from the previous day closing price. Stock 52-week High and Low were GBX 2,703.00 and GBX 1,976.00, respectively.

The momentum indicator RSI (14-period) is trading at ~34.71 levels. Moreover, the stock price is hovering around the lower standard deviation of Bollinger bands. Thus, the stock price may show upside potential in the future.

Valuation Methodology: Price/Earnings Approach (FY21E) (Illustrative) 

Business Outlook

HIK improved its outlook and expected FY21 growth in all three divisions - Injectables (revenue growth in mid-single-digit), generics (expect revenue to be in the range of USD 810 million to USD 830 million) and Branded (expects revenue to grow in mid-single-digit on constant currency basis). Meanwhile, the Company anticipates the acquisition of Custopharm to remain accretive to the Injectables operating margin by generating’s FY21 revenue of USD 80 million. Overall, the Company has a positive impact, fixable manufacturing capabilities, and diversified portfolio to withstand the evolving challenges of the COVID-19 pandemic. Looking ahead, Hikma's robust pipeline and clear strategy shall continue to deliver increased value to its shareholders.

Considering the impressive development pipeline, decent revenue growth, strong profitability, growth in interim dividend, 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 2,016.00 (as on 27 January 2022 at 09:22 AM GMT), with lower-double digit upside potential based on 16.54x Price/NTM Earnings (approx.) on FY21E earnings per share (approx.).

Note 1: The reference data in this report has been partly sourced from REFINITIV.

Note 2: Investment decision should be made depending on the investors’ appetite on upside potential, risks, holding duration, and any previous holdings. Investors can consider exiting from the stock if the Target Price mentioned as per the Valuation has been achieved and subject to the factors discussed above.

Note 3: Dividend Yield may vary as per the stock price movement.

Note 4: Target Price refers to a price level which the stock is expected to reach as per the relative valuation method and or technical analysis taking into consideration both short-term and long-term scenarios.

Technical Indicators Defined: -

Support: A level where-in the stock prices tend to find support if they are falling, and downtrend may take a pause backed by demand or buying interest.

Resistance: A level where-in the stock prices tend to find resistance when they are rising, and uptrend may take a pause due to profit booking or selling interest.

Stop-loss: It is a level to protect further losses in case of unfavourable movement in the stock prices.

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