Hikma Pharmaceuticals Plc (HIK)

United Kingdom-based Hikma Pharmaceuticals Plc is a pharmaceuticals and biotechnology company and specializes in the business of developing, manufacturing, and marketing of a portfolio of branded and non-branded generic medicines. The group has more than 650 products in about 50 countries. Capital Research & Management Co. (World Investors) and FIL Investment Advisors (UK) Ltd. are the major shareholders in the Hikma Plc. (Source: Thomson Reuters).

Financial Performance – FY18 (US$mn)
 
Source: Company filings, LSE

The Group’s revenue grew by around 7 per cent to $2,070 million in Financial year ending December 2018, and the core revenue surged by 7 per cent to $2,076 million in FY18 as compared to $1,936 million in FY17, reflecting good demand for in-market products and new product launches. In FY18, the Gross profit stood at $1,050 million as compared to $967 million in FY17. There was an increase of 9 per cent due to the consolidation of Generics manufacturing facilities and US distribution facilities of the company and restructuring of Columbus facility. Group’s core gross profit increased by 10 per cent to $1,072 million in FY2018 as compared to $973 million in 2017, primarily due to a strong improvement in the profitability of Generics business. Excluding the impact of amortisation other than software and exceptional items, Group’s core operating profit surged by 19 per cent to $460 million in FY18 against $386 million in FY17. Reported Profit attributable to shareholders stood at $282 million in FY18 as compared to a loss of $843 million in FY17.

Stock Performance – 1 Year

Daily price chart (as on May 08, 2019), before the market close. (Source: Thomson Reuters)

At the time of writing (as on May 08, 2019 at 09:03 AM GMT), the shares of Hikma Pharmaceuticals Plc were quoting at GBX 1,770.50 and declined by 0.39% against the previous day closing price. During the past one-year, shares have registered a 52w high of GBX 2,089.00 and a 52w low of GBX 1,290. At the current market price, as quoted in the price chart, shares were trading marginally above the 200-day simple moving average (SMA), which indicates that the stock is entering into an uptrend cycle and potential to move-up further from the current price level.

Valuation Methodology


Conclusion
Hikma Plc has a diversified product portfolio with a significant presence in the United States, MENA, Europe and the United Kingdom. The group has track-record of maintaining an EBITDA margin above 25% from the last 5 years consistently, which shows the efficiency of the management. There has been a strong demand for its existing as well as newly launched products in the market. Also, from the 200-day SMA standpoint, shares of the Hikma have recently broken the 200-day SMA price resistance, which indicates that the stock is entering into an uptrend cycle and strong potential to move up further from the current trading levels. Based on the strong fundamentals and supporting technical indicators and valuation done using the above methodology we have given a “Buy” recommendation at the closing price of GBX 1,777.50 (as on May 07, 2019), based on the 15.4x NTM Industry Median Price-to-Cash Flow (approx.) on FY19E Cash Flow Per Share (approx.).
 

Avacta Plc (AVCT)

United Kingdom-based Avacta Group Plc is a Biotechnology and Medical Research Company.The company offers products that include optim and sensipod. It also develops UCB celltech that is an analytical instrument. Avacta’s sensipod is an in-clinical blood testing system that delivers ELISA tests. The company offers intellectual property relating to an alternative to antibodies.  IP Group PLC, J O Hambro Capital Management Limited and Baillie Gifford & Co. are the major shareholders in the Avacta Plc.


Financial Performance – H1 FY19 (£,000)

Source: Company filings, LSE

For H1 FY19, the group has reported a revenue of £0.97 million as compared to £1.47 million reported during the corresponding period of the previous financial year. Revenue from the company’s Affimer business and Life Science business reduced to £0.29 million vs revenue of £0.69 million in H1 FY18. Revenue from Avacta Animal Health and the allergy and diagnostic business reduced marginally to £0.69 million from £0.77 million in H1 FY18. The company’s operating loss during the period surged to £5.87 millionagainst the operating loss of £4.47 million during the H1 FY18 and reported loss post-tax surged to £5.20 mnfrom £3.95 million in the H1 FY18. However, basic loss per share reduced to 4.80 pence as compared with the basic loss per share of 6.04 pence, primarily because of the new issue of 46,472,724 ordinary shares.

Stock Performance – 1 Year

Daily price chart (as on May 08, 2019), before the market close. Source: Thomson Reuters

At the current market price (as on May 08, 2019 at 09:03 AM GMT), the shares of Avacta Plc were quoting at GBX 29.89 and trading 1.32% higher against the previous day close. During the past one-year, shares have registered a 52w high of GBX 51.0 and a 52w low of GBX 21.

Conclusion
In the past couple of trading days, the stock has breached the 200-day simple moving average support level of GBX 30.78, which indicates stock can move down further from the current trading levels.Also, the group’s margins are in negative territory since last many years. Therefore, based on the unfavourable technical indicators and weak financial position, we recommend investors to keep a cautious Watch on the stock at the closing price of GBX 29.50 (as on May 07, 2019) and support from future growth catalysts need to be evaluated at a subsequent stage.
 
*The buy recommendation is also valid for the current price as covered in the report (as on May-08-19).

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