Hikma Pharmaceuticals PLC

FTSE 100-listed Hikma Pharmaceuticals PLC (LON: HIK) is the United Kingdom-based Pharmaceuticals and Biotechnology Company, specializes in the business of developing, manufacturing, and marketing of a portfolio of branded and non-branded generic medicines.

On 4 November 2021, Hikma expects to release its next trading update.

Investment Rationale – BUY at GBX 2,367.00

• The acquisition of Custopharm will complement the Company’s injectable product portfolio by adding 13 approved products and enhanced R&D capabilities.
• During H1 FY21, Hikma was benefitted from a flexible manufacturing footprint and resilience of its portfolio, which reflected in its year-on-year increase in revenue and gross profit.
• The Company has a robust pipeline of new medicines and a clear strategy to ensure a bright outlook and deliver increased value for its stakeholders.
• Hikma delivered revenue growth in all three businesses during the first half of FY21, reflecting good demand for new and recently launched products.
• From a technical standpoint, the stock price is trading between the middle and lower Bolling Band, while the RSI (~38.13) confirms the oversold position.
• Over the past two years (H1 FY19 to H1 FY21), Hikma has maintained strong profitability multiple since its gross margin, EBITDA margin and net margin have remained above 47.5%, 26.4%, and 17.7%.
• In terms of forward 12-month – EV/Sales and Price/Book valuation multiples are undervalued against the industry median of the Health Care industry. Moreover, its dividend yield is higher than the industry median.

Key Risks

• The lockdown easing can reduce the sales of its injectable division and expected growth trajectory might not achieve.
• The commercial viability of its products can change significantly with political action, economic factors, regulatory interventions, societal pressures, and changes to participants in the industry's value chain.

Recent News

Acquisition: On 27 September 2021, Hikma announced the acquisition of Custopharm Inc for an initial cash consideration of $375 million, from Water Street Healthcare Partners.

Financial Highlights (for the six months ended 30 June 2021, as on 06 August 2021)

(Source: Company Website)

• During H1 FY21, Hikma delivered a 7% year-on-year growth in core revenue, underpinned by strong performance in Generics and Branded.
• Similarly, core operating profit grew 9% year-on-year and generated 25% of core operating margin.
• The Group also generated solid cashflow from operating activities of US$224 million.
• At the end of H1 FY21, Hikma maintained low leverage with net debt to core EBITDA of 0.9x (31 December 2020: 0.9x).

One Year Share Price Chart

(Data Source: REFINITIV, Analysis done by Kalkine Group)

Valuation Methodology: Price/Earnings Approach (FY21) (Illustrative) 

Conclusion

During the H1 FY21, Hikma Pharmaceuticals strong revenue and profit growth with further progress in increasing availability of important medicines. Therefore, it has improved the outlook and expects FY21 revenue growth for all three divisions – Injectables (revenue growth in the mid-single digits), Generics (expect revenue to be in the range of US$810 million to US$830 million) and Branded (expect revenue to grow in the mid-single digits in constant currency).

Looking ahead, Hikma’s robust pipeline and clear strategy shall continue growth and deliver increased value for its shareholders. The Group is also focusing on delivering new products to match anticipated future needs. The stock made a 52-week High and Low of GBX 2,768.00 and GBX 2,158.00, respectively.

Based on the Custopharm’s acquisition, strong first half performance, continued revenue growth in all three businesses, improved FY21 outlook, broad and growing portfolio, we have given a “BUY” recommendation on Hikma Pharmaceuticals PLC at the current price of GBX 2,367.00 (as on 5 October 2021, at 9:05 AM GMT+1), with lower double-digit upside potential based on 20.64x Price/NTM Earnings (approx.) on FY21E Earnings Per Share (approx.).

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

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

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

*Depending upon the risk tolerance, investors may consider unwinding their positions in a respective stock once the estimated target price is reached or if the price closes below the support level (indicative stop-loss price).

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