Hikma Pharmaceuticals PLC

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. The group has more than 650 products in about 50 countries.

On 30^th April 2020, the company will release its April Trading Update.

Recent News
On 2^nd April 2020, the company has changed the venue for its AGM (Annual General Meetings). Now, the meeting will be held at 22 Regent Road, Surbiton KT5 8NL.

Financial Highlights (for the year ended 31^st March 2019) – Decent Performance, with Change in Product Mix in the US
During the fiscal year 2019, the group has remained competitive and delivered decent financial performance. The reported revenue surged 7% to USD 2,207 million in FY19 while the core operating profit stood higher by 10% in FY19 than FY18. Also, the core basic earnings per share surged 9% in FY19 compared to FY18. Thus, the group has recommended a 16% rise in the total dividend for FY19 to 44 cents per share (approximately 34 pence per share), higher from 38 cents per share (about 29 pence per share) in FY18. In 2019, the return on invested capital decreased to 17.3% as compared with the previous year (FY18: 18.6%).

Share Price Performance

Daily Chart as at April-27-20, before the market closed (Source: Thomson Reuters)

Hikma Pharmaceuticals PLC’s shares were trading at GBX 2,371 before the market close (at 12:13 PM GMT+1) on 27^th April 2020 and were up by 0.51% versus the previous day closing price. Stock 52 weeks High and Low are GBX 2,405.00/GBX 1,553.00.

Valuation Methodology

*Peers: Vectura Group Plc, GlaxoSmithKline Plc, UDG Healthcare Plc, ConvaTec Group Plc, and Dechra Pharmaceuticals Plc.

*1 USD = 0.804022 GBP

Key Risks
There are certain principal risks and uncertainties, which could affect the overall business of the company. Fluctuations in foreign exchange rates could affect the profitability of the company; Failure in supply chain management could hamper its operations; Impact of COVID-19; Any change to pharma company outsourcing strategy could affect the business and growth of the company. The global macroeconomic, political, and regulatory risks could further affect the business performance of Hikma. The Group is also exposed to liquidity, interest rate and credit risks.

Conclusion
In Injectables, the company is facing increased competition on glycopyrrolate, neostigmine and thiotepa in the US; lower benefit from controlled substances and change in product mix in the US.Higher marketing and R&D costs in Generics division. Led by the economic slowdown, the company had lower sales in Algeria. The company is making acquisitions which would boost or decline its growth. The company’s operations are impacted negatively due to uncertainty created by the Brexit or COVID-19 as it will result in an uncertain political and economic climate for short to medium term.

Being a Pharmaceuticals company, Hikma Pharmaceuticals Plc needs to invest heavily in innovation and system maintenance and, any failure to do so will impact the brand royalty and may affect the company’s financial performance. The company’s P/E, P/CF, EV/Sales and EV/EBITDA multiples are significantly higher as compared to the industry multiple, reflecting overstretched valuations. Presently, the company is trading near the 52-week High, raising doubts at its upside potential at the current price level.

Based on the risks associated and support from valuation done using the above method, we have given a “Sell” recommendation at the current price of GBX 2,405 (as on 27^th April 2020, before the market close at 8:26 AM GMT+1), based on 14.69x NTM Price/Earnings (approx.) on FY20E earnings per share (approx.).

Midatech Pharma PLC

Midatech Pharma PLC (LON: MTPH) is a United Kingdom-based health care company. The company has two main areas of businesses: Research & Development, and Commercial. The R&D segment develops pharmaceutical products, and commercial segment distributes and sells these products.

Update (as on 20^th April 2020)
The management had decided to close its MTD201 devoted manufacturing services in Bilbao and terminate further in?house development of MTD201 and offered redundancy to 5 employees in the UK. Also, the company would consider partnering or selling the Company or selling one or more of its technologies through a formal sale process. The Board has appointed Noble Capital Markets Inc as its financial advisor. Currently, there are no updates or facts on prospective offers for acquisition.

Financial Highlights (for the six months ended 30 June 2019)
For the first half of the financial year 2019, total revenue for the company was reduced by 18 per cent to GBP 0.45 millionas compared to GBP 0.55 million in the first half of the fiscal year 2018. Income from R&D collaborations increased by 130 per cent to GBP 0.23 million. However, income from the grant has been reduced to GBP 0.22 million as compared to GBP 0.45 million in the first half of the financial year 2018.

The company is focusing on R&D collaborations and out-licensing opportunities for revenue generation. R&D costs decreased by 25 per cent to GBP 3.46 milliondue to a reduction in R&D headcounts. The company’s cash flows used in operations in the first half of the financial year 2019 were GBP 4.58 million due to lower loss from continuing operations.

Share Price Performance

Daily Chart as at April-27-20, before the market closed (Source: Thomson Reuters)

Midatech Pharma PLC’s shares were trading at GBX 24.15 before the market close (at 11:48 AM GMT+1) on 27^th April 2020 and were up by 0.63% versus the previous day closing price. Stock 52 weeks High and Low are GBX 230.00/GBX 16.00.

Key Risks
There are some principal risks and uncertainties which could impact the overall business of the company.Availability of funding uncertainty could impact the performance of the company. Competition and disruptive technologies could have a potential impact on the company and could affect the revenue and profitability of the company. Failure in obtaining regulatory approval could affect the company’s revenue. Excessive dependence on suppliers, partners could hamper the performance of the company.

Conclusion
The first half of the financial year 2019 was challenging for the company. Grant income was reduced significantly to GBP 0.22 million as compared to GBP 0.45 million in the first half of the fiscal year 2018. Research and development programmes are actively undertaken. The company is now more focusing on license deal and commercializing its products. Restructuring of Board would also play a role in future growth prospects.  The Board has decided to close and terminate its MTD201 manufacturing and in-house development. It is also planning to sale the whole operations. There is no further updates on the formal sale process.

In the short-term, the company expects to face challenges from macroeconomic and geopolitical uncertainties, not least from the continuing global trade tensions, which has impacted global growth. The company operates in a challenging environment which requires continuous investment, sometimes at the cost of profitability, to stay ahead of competitors.  The company’s operations are impacted negatively due to uncertainty created by COVID-19 as it will result in an uncertain political and economic climate for short to medium term.

The company’s profitability remained in the negative zone in the financial year 2019. The company’s Price/Earnings and Price/Cash flow multiples are in negative zone as compared to the industry multiples.

Based on the above rationale, we have given a “Sell” recommendation at the current price of GBX 25.00 (as on 27th April 2020, before the market close, 8 AM GMT+1 ).
 
*All forecasted figures and peers have been taken from Thomson Reuters.

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