Hikma Pharmaceuticals Plc (LON: HIK)

Business Overview
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.

Recent News
On 4^th February 2020, the company announced that it will publish its annual results for the fiscal year 2019 on 27th February 2020.

Trading Statement- Financial Year 2019 (31^st December 2019, USD, million)
The company reported that all three of its businesses continue to deliver good organic growth. The profitability of the Group was expected to be in line with the expectations. The Group expected global Injectables revenue to be in the range of $870 million to $900 million for FY 2019. Operating margin on a core basis is expected to be in the range of 36 per cent to 38 per cent. For the fiscal year 2019, the company expected Generics revenue to be in the range of $690 million to $720 million. Operating margin on a core basis is expected to be in the range of 16 per cent to 18 per cent. The company expected Branded revenue growth in constant currency to be in the mid-single digits for the fiscal year 2019.

Financial Highlights – H1 Financial year 2019 (30th June 2019, USD, million)

(Source: Interim Report, Company Website)

On a reported results basis, revenue increased by 7 per cent to $1,047 million as compared to $979 million in H1 FY18, while revenue surged by 8 per cent at constant currency basis. Reported operating profit rose by 37 per cent to $238 million as compared with the corresponding period of the last year. Reported EBITDA climbed by 29 per cent to $297 million against the $230 million in H1 FY18, while EBITDA surged by 30 per cent at constant currency basis. Basic earnings per share stood at 76.4 cents, an increase of 74 per cent against the 44 cents in H1 FY18. Basic EPS surged by 75 per cent at constant currency basis.

Share Price Performance  

Daily Chart as on 19^thFebruary 2020, before the market closed (Source: Thomson Reuters)

On February 19^th, 2020, Hikma Pharmaceuticals Plc shares were trading at GBX 1,943 at the time of writing before the market close (at 1:15 PM GMT), up by 1.29 per cent against the last day closing price. Stock's 52 weeks High and Low are GBX 2,212/GBX 1,540. The stock price has given13.29 per cent returns during the previous year. In the last three months, the stock price has given 2.2 per cent returns.

Growth Drivers
The Group is focus on its strategic priorities. The company’s core businesses have delivered good organic growth. The profitability of the Group was in line with the expectations.  The company has a mixed product portfolios, strong commercial capabilities and tight cost control, which would benefit it in its growth.  The Group with its new products and strategic investments in R&D could accelerate the growth rate of its business. The company is also focusing on partnerships to drive sustainable long-term growth.

Conclusion
The company expected injectables revenue to be in the range of $870-$900 million for the fiscal year 2019. Operating margin on a core basis is expected to be in the range of 36%-38%. Hikma Plc has a diversified product portfolio with a significant presence in the United States, MENA, Europe and the United Kingdom. There has been a strong demand for its existing as well as newly launched products in the market.

The company’s revenue has grown from $1,440 million in FY 2015 to $2,076 million in FY 2018 delivering growth of 12.96 per cent on CAGR basis.

Therefore, based on the above rationale, we have given a “Hold” recommendation at the closing price of GBX 1,920 (as on 18th February 2020).

Weir Group Plc (LON: WEIR)

Business Overview
Weir Group Plc is an industrial engineering company which provides solutions for high abrasion mining, infrastructure and upstream oil and gas applications. The company was established in 1871. The company also provides engineered solutions to infrastructure and construction companies. It manufactures pressure pump and pressure control equipment, etc. It also offers instrument repairs and field services.

Recent News
On 12^th February 2020, the company announced that its Chairman, Charles Berry, has taken leave due to his emergency condition. Barbara Jeremiah would take his responsibilities in his absence.

Q3 Financial year 2019 Highlights (30^th September 2019)
In the third quarter of the financial year 2019, the company’s orders from continuous operations grew by 4 per cent and were flat on a like for like basis. The company’s original equipment orders increased by 41%; aftermarket orders fell by 7% due to the negative sentiments in North American oil and gas markets. The company reported a positive book-to-bill ratio of 1.08 in the third quarter of the financial year 2019.

Financial Highlights – H1 Financial year 2019 (30th June 2019, GBP, million)

(Source: Interim Report, Company Website)

In the first half of the financial year 2019, the company’s orders grew by 17 per cent due to the recent portfolio transformation. The company’s reported revenue increased by 25 per cent to GBP 1,329 million due to the minerals order intake and growth in OE business. The company’s reported operating profit grew by 5 per cent to GBP 172 million and reported a profit after tax increased by 21 per cent to GBP 78 million due to the increased orders and growth of the business. The company’s net debt increased to GBP 1,316 million due to the working capital phasing.

Share Price Performance  

Daily Chart as on 19^thFebruary 2020, before the market closed (Source: Thomson Reuters)

On February 19^th, 2020, Weir Group Plc shares were trading at GBX 1,350 at the time of writing before the market close (at 9:50 AM GMT), up by 0.75 per cent against the last day closing price. Stock's 52 weeks High and Low are GBX 1,819.72/GBX 1,249. The stock price has givennegative 13.2 per cent returns during the previous year. In the last month, the stock price has given negative 6.89 per cent returns.

Valuation Methodology


Key Risks Factors
The company faces certain risks and uncertainties, which could impact its business. The company works in a disruptive market, failure in adopting new technologies and innovations could impact the business of the company. Political and social uncertainty could affect the revenue and operations of the company. Failure in cybersecurity and a critical data breach could impact the operations of the company. Failure in managing value chain could affect the operations as well as the profitability of the company. The company operates in minerals and oil & gas division which are very volatile, and this market volatility could impact the revenue and profitability of the company

Conclusion
The company is performing well in the minerals segment, but oil & gas orders remained weak. The company gained the GBP 100 million order for a project in Australia which signifies the growth of the company. The company has a robust aftermarket business model which will remain crucial for the growth of the business.

Based on the valuation and factors as highlighted above, we recommend investors to keep a “Watch” on the stock at the current price of GBX 1,384.50 (as on 19th February 2020, before the market close at 8:00 AM GMT), with support from improvement in oil & gas markets of North America needs to be evaluated at a later stage. 
 
*All forecasted figures and information have been taken from Thomson Reuters.

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