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This is a good print, especially given the distraction of the US market, and we are reassured that Hikma maintained full-year guidance in the face of these tariffs (included within guidance). However, we note that Injectables might lose 1-2pp of margin. We reiterate Buy, TP 2,170p.
Hikma Pharmaceuticals Plc
Hikma has delivered an in line set of results with guidance for the full year unchanged. The bears might grab onto lowered Injectables margin guidance but this looks to be down to currency and mix rather than anything else and is being offset elsewhere. There wasn’t any new news in the statement but, for us, the most important takeaway is that Hikma is well placed vis a vis tariffs and is making good progress in R&D, which we think is the key to improving the quality of the earnings and triggering a rerating. We remain Buyers with an unchanged 2500p TP.
What happened? H1 revenues and core EBITDA/EPS +1%/in-line/6% vs. consensus expectations with Injectables/Branded/Hikma Rx revenues/core EBIT respectively +2/-9%, in-line/+16% and in-line/+8% vs. expectations. While the Injectables (65% of group core EBIT) guidance has been slightly reviewed downwards (32-33% vs mid-30s before) to reflect some pressures on high-margin products and adverse FX impact, we note that this is going to be partially offset by a more supportive FX outlook for Branded with company very confident to deliver on its FY 25% group margin guidance. With multiple levers available to further improve Injectables margin over time, we remain confident on the business'' ability to support the group''s margin on the LT but acknowledge Q2 performance and guidance update might slightly weigh on shares this morning. BNPP Exane View: While Hikma shares initially responded positively to the new MT guidance, implying MSD positive revision to expectations, unveiled at company''s CMD in Columbus (Ohio) in May, all gains have since then been erased with stock price now back at pre-CMD levels. Although we are not arguing that shares should have necessarily benefitted from the same momentum that propelled Sandoz''s stock price to their all-time highs (now trading at a 30% premium to EU Pharma 2026 PE), we still believe that recent stock price performance does not reflect Hikma''s untouched appeal in the context of the US administration''s rhetoric on drug pricing and manufacturing re-shoring. Even though we continue to believe that potential tariffs on pharma products should be broadly manageable across our coverage, we still assume that it will require EU Pharma to rebalance meaningfully its manufacturing capabilities overseas. In this context, we continue to see Hikma''s strong US manufacturing footprint as an underappreciated tailwind for company''s core business US market share and for its high-margin contract manufacturing business. Key financials ....
Hikma is due to report interim results on Thursday the 7th of August. We know from guidance that FY25E is expected to have an H2 bias and our forecasts show a circa 48%:52% core operating profit split. Normally we are cautious with regard H2 biases but, in this case, there are credible reasons around the timing of product launches, tenders and CMO business which suggests that risk isn’t as high as one might thing. The company has also been actively managing expectations, which should avoid any nasty surprises. Looking at the longer-term investment case we remain of the view that Hikma is one of the strongest rerating stories in our coverage, driven by the work the company is doing to improve the overall quality of earnings. We remain buyers with an unchanged 2500p price target.
We have adjusted our estimates ahead of 2Q earnings (7-Aug) to reflect latest comments and currency impact. Our 2025e revenue/Core EPS are broadly unchanged. We do not consider the changes to be material; our rating is unchanged.r
While the market reacted positively to Hikma’s newly introduced medium and long term guidance, we think that is just the start. The company demonstrated at the CMD the amount of the work that has been going on behind the scenes investing in R&D and increasing capacity. While most of this investment will take time to flow into the numbers, Hikma’s confidence is reflected in the medium term guidance, which implies upgrades to consensus from FY26E onwards. We highlight in this note some of the key takeaways from the CMD and while we aren’t changing our forecasts at this stage, we would expect to start nudging them upwards as some of the key pieces fall into place over the next twelve months. Even after the recent uplift the shares still look attractive, trading towards the bottom end of our valuation range and while some uncertainty remains around the impact of most favoured nation pricing in the US, we think Hikma is looking increasingly well placed. We remain Buyers with an unchanged 2500 TP.
What happened? Hikma is hosting a Capital Markets Day (CMD) in Columbus (Ohio) where they have unveiled new MT guidance that implies Mid-to-high SD upgrades to FY27 consensus sales/core EBIT expectations. BNPP Exane View: Ahead of its CMD that is being held today at its Columbus plant, Hikma has unveiled new group MT guidance that looks for 7/8% 2024-27 CAGR for sales and core EBIT respectively (at midpoint), implying 6/7% positive revisions to consensus expectations. On top of this, Hikma has set a $5bn LT revenue guidance that implies double-digit upgrades to consensus. Though this likely assumes MandA, a strong track record and healthy balance sheet makes this credible in our opinion. From a first look at the company''s slide deck for the day, we note that the LT strategic plan is based on capacity expansion (1.5bn in CAPEX, broadly in line with expectations), growing CMO activity (set to represent 20% of the Generics business) and a ''strong'' contribution from the nascent compounding business among other key drivers. This very much aligned with our investment thesis that support our recent initiation of Hikma at Outperform (see: HIKMA: A winning tariff formula). . New MT outlook implies 6%/7% positive earnings revisions on FY27 sales/core EBIT. While the company historically guided at the divisional level (except for Generics, now called Hikma Rx) on a 5-year basis, it had yet to set MT guidance at the group level. They have now done this with the company guiding for 7%/8% group revenue/core EBIT growth 2024-27 CAGR (at midpoint) which underpin 6%/7% upgrades to expectations. . $5bn revenue LT revenue guidance implies double-digits upside to expectations. On top of this, Hikma is now giving a LT outlook which targets $5bn in group revenue in 2030, i.e., a 10%/20% upside to BNPP Exane/consensus. While it is fair to assume that this LT target is assuming some MandA, we believe that the company''s strong BD track record and healthy balance sheet...
Hikma is a global diversified and vertically integrated generics company with a leading presence in the US and MENA. Though we await further clarity, we ultimately see US tariffs as a net positive for Hikma - we think the company can leverage its strong US manufacturing footprint to offset limited potential cost impact through market share gains and manufacturing capacity monetisation. We initiate at O/P ahead of a positively skewed CMD set to formalise the company''s LT outlook. Potential US tariffs on Pharma - a net positive for Hikma We believe the company''s vertically integrated model and end-to-end domestic capabilities in its core geographies help insulate it from the rise of protectionism across the globe. Firstly, with 75% of its US business (60% of FY24 revenues) being locally manufactured and 100% being affordable generics business, we see Hikma as a relative winner within our coverage. Secondly, we believe Hikma could turn potential US pharma tariffs into an opportunity to gain further market share while monetising its capacity to partners seeking to reshore some of their production. Upcoming CMD (May 15) set to drive positive earnings revisions While management has recently strengthened the company''s US manufacturing capacity through MandA and signalled increased RandD spending commitment moving forward, it has yet to underpin its renewed confidence in its long-term outlook with hard figures. The company''s upcoming CMD should bring material updates and we believe potential is very much skewed to the upside considering that shares have already priced in the incremental RandD efforts (7% sell-off on FY24 earnings day). Our 2,650p TP implies a 9.5x FY26 EV/EBITDA (in line with the sector) Our 2025-2030E topline/core EBIT estimates sit 1-14% above consensus and support our DCF-derived (WACC 9.9%; TGR 2.5%) 2,650p target price. Our TP implies a 9.5x FY26 EV/EBITDA, i.e. in line with the sector, while offering 2025-30e revenue/EPS CAGR of 7%/11%,...
Company news – Merck has stated that its tariff impact is c.US$200m and Dover US$215m. PepsiCo has cut guidance due to global trade development and a subdued consumer backdrop.
Hikma Pharmaceuticals Plc Inchcape plc
This is an encouraging update. Although our TP comes down, this is merely a reflection of the narrowing multiples. There remains 14% potential upside to our 2,170p TP, and we are pleased to see a tentatively optimistic tone regarding the US, the first for a while. We retain our Buy rating.
While the recent results were in line with expectations, the shares were hit by a bout of profit taking and concerns over the weaker than expected Injectables guide. We aren’t overly concerned about the latter, as revenue growth can be lumpy, but we expect it will weigh until Hikma can show some evidence that it is a blip. We will likely have to wait for August’s half year results for solid evidence, but April’s AGM and May’s CMD may provide some early signs. That aside, we remain fans of Hikma and, in particular, the strategy of taking control of its R&D pipeline, which we think will improve the overall quality of earnings. We leave our forecasts and TP unchanged and remain Buyers.
Overreaction – Market weakness this morning is a buying opportunity, in our view. There is some confusion with (some) market commentators on EBIT/EBITA reported numbers, combined with, perhaps, some expectations of an upgrade (potentially exacerbated by the narrative for ‘further investment’). We do not expect FY25E forecasts to change. Hikma currently trades on 8.6x FY25E EV/EBITDA. We maintain Buy.
While the shares have had a good run over the last month, we think there is more to come as the market warms to the shift in strategy in the Generics division. February’s full year results should underline the progress being made and give some clarity on the outlook for FY25E but, given the positive Q3 update, we think the guide will be encouraging. As a result we are upgrading our FY25E forecasts today and upping our Target Price to 2500p.
We look through the waxing/waning peer multiples and see a business executing well. However, our mixed valuation sees the TP fall 50p to 2,290p despite underlying FY24-25E upgrades. We maintain Buy.
Hikma hosted an informative CMD in Casablanca last week, focussing on the MENA business. We came way encouraged by what we saw. Hikma as a very strong presence in MENA and not only are there significant growth opportunities in both Branded and Injectables, but the barriers to entry are higher than in other markets, protecting Hikma from some of the volatility that impacts its Generics division. The expectation is that Branded revenue growth will accelerate over the next few years and that looks to be a credible assumption given the clear momentum in licensing deals. Injectables MENA revenue growth should also accelerate, with new capacity coming on board and Hikma building a strong presence in biosimilars.
A positive update – Consensus remains conservative vs guidance at an operating profit level, with some investors worried about Injectables, but we believe the reaffirmed guidance will be well received by the market. We reiterate Buy and our 2,340p TP. We will review forecasts in due course.
While we’ve no doubt that the recent share price increase was triggered by the beat and subsequent upgrades, for us, the most important news that came out of the recent results, was an increased focus on the pipeline. This isn’t about simply throwing money at R&D, but more about playing to Hikma’s strengths and focussing on returns and M&A. Ultimately the aim is for Hikma to gain more control over its future, and we view this as key to improving the quality of earnings and hence the rating. We remain buyers with our TP increasing to 2200p to reflect the upgrades.
Strong momentum – HIK is executing well, with signs of strong underlying growth in each segment (aside from the expected margin shift in sodium oxybate). We will update our forecasts in due course, and expect to raise EBITA c.8%. We reiterate Buy, TP 2,340p.
The shares have been a little range bound over the last few months with buyers likely staying on the sidelines given the lack of short-term earnings growth, despite attractive valuation metrics. While we don’t expect the interims will include any fireworks, we do see scope for a small increase in guidance which would, in our view, be a performance catalyst. We remain Buyers with an unchanged 2100p TP.
Hikma delivered 20%/25% growth in EBIT and EPS in 2023 driven by the contribution of gXyrem to Generics, margin improvement in Branded and continued strong performance from Injectables in each market. Hikma's share price responded positively to the initial print, but consensus EPS forecasts have si
We think valuing Hikma is quite challenging right now. On one hand, growth is going to be hard to come by in the short term; on the other hand, the company remains highly cash generative and the yield is attractive. This means that while we can make a longer-term buy case, it is harder to see what will catalyse the shares in the short term, especially given elevated tensions in the Middle East. We reduce our price target to 2100p, using a through the cycle sum-of-the- parts approach, but remain Buyers based on what remain attractive fundamentals.
A solid update – It is churlish of us to focus on the negatives (impairments, finance costs and mix change in FY24): clearly this is a good print and, dare we say it, there is potential for margin upgrades in 2024E. We reiterate Buy, TP 2,340p.
Hikma delivered 20%/25% growth in EBIT and EPS in 2023 driven by the strong performance in Generics, margin improvement in Branded and continued strong performance from Injectables, albeit slightly lower than guidance with Compounding revenues moved into "other". Hikma's cash-generation and balance
Hikma is due to report preliminary results on the 22nd of February. We think numbers are likely to come in towards the upper end of expectations driven by a combination of strong Xyrem sales and the currency headwind easing slightly towards the end of the year. That said, the focus is likely to be on guidance for FY24E and we’ve set out our expectations in this note. The Xyrem headwind in FY24E means that profits will most likely fall back, but that isn’t new news. Our sense is that there is still a little to go on the rerating and an uneventful set of prelims should reassure. A new buy-back could also support the share price. We reduce our Target Price to 2400p following a change of analyst but remain Buyers.
Hikma’s all three segments continued their healthy performance in Q3. While the management upgraded its 2023 guidance for two segments, Injectables was held back by temporary capacity constraints, which led to this segment’s lower-than-expected performance in Q3 and a slight downward revision to the full-year outlook. Nonetheless, the Injectables’ situation is expected to normalise in 2024. Overall, the strong ongoing momentum, the promising long-term prospects for generics/biosimilars and a healthy balance sheet support our positive recommendation on Hikma.
Hikma has announced that strong trading has continued since the first half of the year. The company has raised guidance for its Branded and Generics business with Injectables tracking towards the lower end of the prior guidance range. Our forecasts for FY23 have been upgraded 4%, with FY24 currentl
No change to FY23E – But moderating previously optimistic Generics forecasts sees Generics EBITA drop to soft-guidance (c.£120m EBITA), and group EBITA in FY23/24/25/26E declines 0%/‑7.5%/‑7.6%/‑12%. We reduce our TP from 2,480p to 2,340p, but maintain Buy.
We continue to see positive momentum in the business and increase our target price from 2,210p to 2,480p. We retain our Buy recommendation.
Hikma did raise full-year guidance at last week’s interims, but with the upgrade driven by Generics, after a strong first half and a better outlook for Xyrem sales, rather than Injectables. In fact, performance was strong across the Group in the first half, although the Group did benefit from the pull-forward of orders from H2 into H1 and the phasing of costs to H2 so H2 is expected to be weaker. The strength in the Generics division means we have upgraded Group core EBIT 2023 estimates by 10% and 2024-25 EBIT estimates by 4%. The update should reassure investors that the headwinds that the Generics division faced in 2022 are now abating. Shares have reached a 52-week high, but given they still trade on only 8x EV / 2023 EBITDA post-upgrade, we believe there is more to come available. We remain buyers with a new TP of 2,430p.
The H1 23 results exceeded expectations, with a strong showing from all three divisions, which also helped the firm clock a better performance than its peers. Considering the healthy momentum, the management again upgraded the guidance for ‘Generics’. Overall, with the expanding product portfolio and increasing focus on the treatment of chronic diseases, Hikma stands to benefit from the promising long-term growth prospects of generics and biosimilars, which also backs our positive stance on the firm.
Meeting Notes - Aug 03 2023
HIK BBOX MGNS SPT EMG SHC TTG SWR MER HTWS CREO SBRE CPI TEP WPP
Hikma has reported a very strong H1 with sales and EBIT up 19%/39% benefiting from the performance of recently launched Injectables and Generics, a more stable pricing environment, strong customer demand and increasing shortages and regulatory warnings from competitors. The shares have rallied sign
A positive update – Aside from the understandable Sudan issue, we believe there is scope for further upside risk in 2H23 (from Injectables). Hikma currently trades on 9.0x FY23E EV/EBITDA and 13.4x PE (Capital IQ) up from 7.9x and 11.3x at the time of the AGM statement.
Since Hikma’s last update in April, a tornado has partially damaged one of its competitor’s injectable facility and eyes are on whether this will be a catalyst for Hikma to upgrade full-year guidance at tomorrow’s interim result. Our view is more cautious as we believe the impact may be slow to realise and less material than first believed, while headwinds in the Generic division and Branded division may offset gains. Given the strong run of late and the expectation of an upgrade, we won’t be surprised to see price weakness if an upgrade doesn’t materialise. However, we still see material value from a longer-term perspective so in the absence of any nasty surprises, we would recommend investors buy any weakness. We remain Buyers with an unchanged 2350p target price.
Big Pharma is staring down a major patent cliff, and Hikma – with its unique positioning in the generics space – is on the right side to benefit over the medium term. Hikma shares were affected by downgrades in 2022, but the recent trading update gave confidence the worst is over and laid a path for the shares to rerate. Investors looking for a long-term investment with diversified revenue streams, respectable growth rates, high margins, and a proven track record, all at a reasonable price need look no further. We initiate as Buyers with a 2,350p TP.
The qualitative Q1 23 update was upbeat, wherein the full-year guidance for Generics was upgraded, as its healthy performance had exceeded the management’s expectations. The other segments also sustained strong momentum. Overall, despite the stock being up c.23% ytd, we reiterate our positive recommendation for Hikma, which is underpinned by promising mid-to-long term growth prospects for biosimilars and generics, and a healthy balance sheet.
Hikma has reported a strong start to 2023 as we had anticipated from recent prescription trend analysis. Injectables continues to perform well across the US, Europe and MENA with high-quality manufacturing and responsiveness to customers needs core to Hikma’s success across each region. The MENA Br
A better start to FY23 – Last year was one to forget for Generics, and whilst we have long suspected an upgrade might come through, we though margins might be first (PHe slightly ahead). This is good news nonetheless.
Towards the upper end of guidance – we continue to see a healthy business here and think that consensus might have slightly overdone the outer year downgrades in Generics. We reiterate our Buy.
Hikma’s ‘core’ profitability exceeded expectations, driven by Injectables. However, the tough environment for Generics, and hyperinflation and adverse FX movements for Branded weighed on the overall performance. Nonetheless, all divisions are guided to aid 2023 improvements. Overall, the robust positioning in target markets and relatively lower leverage levels place Hikma in a good position to capitalise the optimistic outlook for biosimilars and generics, making it an attractive small pharma recovery story.
PH thoughts – If we differ anywhere vs consensus, we believe it is on Generics margins (PHe slightly higher), but are not making any material changes across the segments on the back of these results and guidance. Hikma trades on 7.9x FY23E consensus EV/EBITDA and 10.6x PE.
Hikma had a challenging 2022 and while revenues were broadly flat, adjusted EBITA margins fell 50bp on constant currency due to pressures on the Generics business. Injectables performed well and benefited from bolt-ons in the US and Canada, and the MENA Branded business also performed well, albeit
Arecor has provided an update on its partnered Specialty Hospital programmes with Hikma Pharmaceuticals. AT307 and AT282 are both novel enhanced formulations of existing, albeit undisclosed, marketed injectable products. The transfer of AT307 to Hikma for further development and, importantly, their commitment to seek approval under the FDA 505(b)(2) pathway triggers an undisclosed milestone payment. However, all rights to AT282 have been returned to Arecor following a portfolio review at Hikma; Arecor will assess options for re-partnering AT282. Given Hikma’s focus and expertise with differentiated/specialty generic products, this collaboration provides strong external validation of Arecor’s capabilities, and we believe Hikma is well placed to capitalise on the potential of AT307. Updating our model generates an Arecor valuation of £174.5m (570p per share) from £179.6m previously.
Hikma Pharmaceuticals Plc Arecor Therapeutics PLC
In recent months, Hikma has benefited from both macro events and company-specific developments. Yesterday, the firm launched Xyrem, whose postponement in 2022 had led to a guidance downgrade, and a collaboration with Celltrion for the commercialisation of a biosimilar for a key oncology drug. Also, the group could benefit from ongoing drug shortages in different parts of the world. Despite the c.36% share price gain since October 2022, the stock remains down c.27% on its early-2022 levels and the c.23% upside is well worth going for.
Hikma yesterday hosted a sell side analyst visit to its Injectables manufacturing facility near Lisbon in Portugal. The site commenced operations in 1992 and has since expanded to produce and range of injectable antibiotics, cytotoxics and controlled substances across a range of formulations (liqui
Like the earlier quarters, momentum for Injectables and Branded continued making up for the tough times being faced by Generics. Thankfully, the full-year guidance for Generics was maintained, after two downgrades this year. Overall, while the stock is down c.40% (in ytd terms) – mainly due to concerns around its Generics business, our positive recommendation is supported by the long-term growth potential of the biosimilar and generics markets, Hikma’s strong position in the target markets, and its comfortable gearing position.
3Q trading: full year guidance reiterated; no changes In-line is definitely the ‘new beat’ for Hikma and we are pleased to see the group maintaining guidance across all its segments after a difficult 2022 so far. The only new news in the statement is an inching up to the top of the guidance window for Injectables’ operating margin. However, as PH and consensus are already there, we anticipate very little movement. Though we have previously described how recovery in Generics will likely take some time, we keep our Buy rating and look to outperformance from Branded, Injectables and the launch of Xyrem in January 2023 as upside potential. Miles.Dixon@peelhunt.com
Hikma has reiterated full year guidance for each division, which should be welcome after significant downgrades to Generics earlier in the year. We are also beginning to see increased regulatory enforcement action on the wider generics industry and "demand-led" shortages for certain injectable anti
Updating numbers post 1H22 guidance downgrade We adjust our forecasts for latest guidance and reduce Generic’s revenue for FY22-24E by 14-21% due to the more competitive pricing environment (c.29% at operating profit level in FY22E for the segment). This is slightly moderated by smaller forex headwinds in Branded, leaving group reported operating profit down 4%/8%/6% in FY22/23/24E vs prior PHe. We reduce our TP from 2,420p to 2,150p and although confidence has been shaken, we retain our Buy rating given c.33% potential upside as well as risks to the upside from Branded, Injectables and Xyrem. Miles.Dixon@peelhunt.com 12-page note
Hikma ended the H1 on a weak note, with decent growth in Injectables and Branded segments being largely offset by a decline in the Generics franchise. Also, the weaker H1 led to a second downward revision to the full-year 2022 outlook for Generics in the last three months. Nevertheless, these are only transient concerns and the firm’s attractiveness remains intact on the back of the robust long-term virtues of the generics market, and the group’s leading position in the target markets.
1H22 in line but guidance changes: Generics cut by c.10% Interim results were in line (revenue, core operating profit and EPS), but investors will likely focus on the change in guidance for FY22E. While there may be some small upward changes in Branded, there will almost certainly be some downward revisions again in Generics. The revised guidance is $650-675m for Generics (vs PHe of c.$738m and consensus of $742m), implying a c.10% cut at the revenue level and c.30% at the profit level (margins down to c.16% from PHe of c.21%). This is a c.8% cut to Group core operating profit excluding any positive impact from Branded (+c.1.5%), with the net being c.-6.5%. Miles.Dixon@peelhunt.com
Over the last 12 months, Hikma has faced various headwinds including double-digit oral generic price declines, a delay to a major generic product (Xyrem), and the resignation of the former CEO. Despite these issues, sales are flat on H1 2021 with 11% CER growth in Injectables and 9% CER growth in B
Updating forecasts for latest guidance: Generics cut c.22% We update our numbers to account for various factors, notably the late launch of Jazz’s Xyrem (a c.20% cut to Generics in FY22E, as we forewarned in May 2022), but also the inclusion of the c.US$300m buyback and the effects of recent adverse FX movements for a USD reporter. The largest impact is in Branded, reducing reported FY22E revenues by c.5%. The net effect is an 11% cut to FY22E core operating profit, and we are now broadly in line with consensus. We reduce our TP from 2,460p to 2,420p and reiterate our Buy recommendation. Miles.Dixon@peelhunt.com 11-page note
Meeting Notes - Jul 04 2022
HIK JUP MGP PCA ASHM ASTO BPT FRSX FSFL FTN FTF FTD FTSV FTV FWT FSF FSG FGFH FELPU ICG LIO EMG N91 PHLL POLR QLT SDR STJ WINA
Hikma is a high-quality provider of critical injectable, branded and generic medicines that we view as defensive with macro headwinds rising elsewhere in the global economy. Hikma has a strong #2 position in US Injectables, is the largest domestic pharmaceutical company in MENA and has a solid gene
Following a conference call from Jazz Pharma last night, Hikma has updated its guidance for its Generic division (c.30% of sales, 25% of profits) to reflect a deferral in the expected launch of generic Xyrem. It now expects sales of $710m - $750m and a c.20% operating margin. This equates to a 9-13
Generics cut by c.15-20%, -10% at group operating profit A phasing issue of revenues in the Generics segment (associated with the launch of Jazz’s Xyrem) now means Hikma needs to push out guidance for Generics. This is a c.15-20% cut to FY22E Generics revenue guidance and – after accounting for reduced margins (c.20% vs 24.5% previously) – this could see a c.33% impact to Generics operating profit and a c.10% cut to group operating profit. Though this is obviously disappointing news today, it is merely phasing and the downside to the share price should be mitigated a little, in our view, by the weakness at last week’s results. Miles.Dixon@peelhunt.com
Hikma has had a slow start to 2022, largely due to escalating headwinds in the Generics segments. While the update for the Injectables and Branded segment was reassuring, the negative market reaction was largely due to uncertainties surrounding Generics, thereby further weighing on share price momentum. As a result, our segment-level estimates should be revised downwards. Also, some discount on the peer-based valuation is likely to be incorporated.
2022 appears to have started well for the Injectables and Branded business with increased competition and adverse pricing environment leading to a slow start to the year for Generics. We continue to view Hikma as a defensive growth company well diversified by businesses, products and geographies an
1H22 trading: updated Injectables lifts profit by c.1% Hikma published a 1H22 trading update, updating guidance to include a contribution from the Custopharm acquisition (closed 21 April 2022). Generic and Branded guidance remain the same, but it now expects Injectables revenue growth to be in the mid to high single digits. This translates into a c.1-2% uplift to core operating profit for Injectables (consensus holds $413m for FY22E), and c.0.5-1.0% at the group level (consensus core group operating profit for FY22E is $692m). HIK concedes that Generics has started slowly (it expects it to be 2H weighted), but made no change to guidance. Buy, TP 2,460p reiterated. Miles.Dixon@peelhunt.com
Hikma finished 2021 on a strong note, with encouraging sales growth across segments. However, the 2022 outlook has come in below our expectations, with various issues in all the major businesses and/or geographies. Nevertheless, as these are only transient concerns, the firm’s investment attractiveness remains intact. Although, some moderation of the forecast seems inevitable.
Today's news & views, plus announcements from HIK, RR, LLOY, GNS, RAT, SXS, BGO & BOOM.
Hikma Pharmaceuticals Plc Bango plc
FY21 in line, Generics harder in FY22E, $300m buyback FY21 results were in line and discussions on FY22E guidance will likely focus on weaker-than-consensus expectations for Generics (8-10% growth vs consensus 17% and PHe 13%). We are not too concerned (it implies c.1-2% impact on FY22E group EBIT), believing it already discounted in the price and given that PHe for FY23E Generics growth is at just 5% already. EPS and EBITDA multiples are comfortably below their 12-month averages of c.16.4x/10.4x, with Hikma currently trading on 13.3x NTM PE (consensus) and 8.9x EBITDA. In addition, Hikma announced a $300m share buyback this morning. Miles.Dixon@peelhunt.com
Hikma has performed exceptionally well in FY21 after a similarly strong FY20. Group revenues/EBITA/EPS have increased 7%/15%/17% on CER benefiting from strong organic performance and new product launches. The R&D pipeline has strengthened significantly with various bolt-ons and other strategic
Upgrade to Buy: underappreciated strategic execution We have previously described how we were waiting for more confidence on earnings momentum. Aside from the pull-back in the share price creating upside to our TP, there has also been an emerging trend of consensus upgrades for FY21-23E. We believe Hikma’s strategy is evolving quickly and management is underappreciated for its progress. We make no change to forecasts (except for the recent $46m cash impact of the Teligent acquisition), but upgrade from Hold to Buy on weakness. Miles.Dixon@peelhunt.com 7-page note
Today's news & views, plus announcements from HIK, GSK, CAPC, XPD, TAVI, INL & PCA.
HIK PCA XPD
Hikma continues to perform in line with prior guidance. Injectables is still expected to deliver mid-single digit growth and 37-38% EBITA margins with the US returning to growth, Europe performing well - including contract manufacturing - and MENA scaling up. Generics has continued the strong H1 pe
3Q trading: Generics margin guidance meets consensus Hikma says it now expects the core operating margin in its Generics business to be towards the top end of the 22-24% guidance range on positive mix. However, this is unlikely to change forecasts, because our estimate is currently 24% and company-gathered consensus is at 23.7%. The stock is trading in the middle of the share price range YTD, and with the limited scope for upgrades, we would expect at most a small positive move in the shares today. Hikma trades on 16x 2022E PE on our forecasts for a three-year EPS CAGR (2021E-2024E) of 6.2%. We maintain our Hold recommendation and 2,460p target price. Amy.Walker@peelhunt.com, Miles.Dixon@peelhunt.com
Model update for licensing deal and injectables acquisition We increase our medium-term (2022-24E) revenue and EPS estimates by 2-4% to reflect the recent announcements of the biosimilar licensing deal with Bio-Thera and the Custopharm acquisition, which we assume will close in mid-2022 pending FTC approval. Our 2022E EPS is now 212p (vs 207p previously). The effect on our valuation is balanced out by the cash impact of the associated payments for the transactions and updated peer multiples in the multiples-based component of our valuation for the group. We maintain our Hold rating and 2,460p target price. Amy.Walker@peelhunt.com, Miles.Dixon@peelhunt.com 7-page note
New partnership deal kicks off US biosimilar strategy Hikma has indicated an ambition to partner in US biosimilars for some time, and so it was good to see execution on this strategy begin last Friday. However, the project is still at a relatively early stage, and whilst the market for initial product ustekinumab is large, it is also highly competitive. We maintain our Hold rating. Amy.Walker@peelhunt.com, Miles.Dixon@peelhunt.com, Anchal.Verma@peelhunt.com
Reflecting new Generics guidance in our model We upgrade 2021E EPS by 6% and raise our target price from 2,300p to 2,460p to reflect the increased Generics guidance at the 1H results, in turn due to the mix effect from new launches. To turn buyers of Hikma we would need more confidence on the potential for further positive earnings momentum from here, given the limited upside to our valuation and our below-consensus forecasts beyond 2021. We maintain our Hold rating. Amy.Walker@peelhunt.com, Miles.Dixon@peelhunt.com, Anchal.Verma@peelhunt.com 9-page note
Hikma reported better-than-expected sales in H1, driven by strong growth in Generics and Branded segments. However, with the group largely maintaining its outlook for FY21 (ex. Generics), it points towards sequentially weak H2 21. Additionally, ‘some’ concerns in all its segments made the investors jittery. Having said that, these issues are transient in nature and shouldn’t have any bearing on the group’s longer-term fortunes, and Hikma should return to full throttle, driven by the gradual recovery in its ‘lynchpin’ Injectables segment.
1H21 beat, new guidance implies c.2% profit upgrades New launches in the Generics business stole the show, driving a high single-digit beat vs our EBIT and EPS expectations for 1H, and enhanced by raised FY21 guidance for the segment that we estimate implies c.2% upgrades to FY21 EBIT and EPS estimates in our forecasts and consensus. The strong share price into this print suggests an upgrade was anticipated, but we would still expect a positive reaction to the news today. We’ve missed the short-term momentum trade and with R&D ramping up in 2H we lack sufficient confidence to turn buyers and stay Hold. Amy.Walker@peelhunt.com, Miles.Dixon@peelhunt.com, Anchal.Verma@peelhunt.com 2-page note
Hikma performed well throughout 2020, and has maintained that performance into H1 2021 with strong performance from Generics and Branded offsetting weaker growth from Injectables that had benefited from pre-pandemic stocking. The shares have had a good run so far this year, and now trade on 13x FY2
Hikma has provided a reassuring Q1 21 business update – Injectables benefited from new launches while the momentum in Generics was driven by COVID-19-related products. While demand for such products could normalise, Generics should benefit from the ‘much-awaited’ launch of the Advair copycat in the coming quarters. Within Injectables, a pick-up in elective procedures in the US, as people get vaccinated, should be a key growth driver. Combined with the new licensing deals announced recently, we see upside risk to the full-year guidance.
Strong start to the year for the business with full year outlook unchanged. The Injectables business is performing well, with new product launches offsetting reduced demand for COVID-19 products enhanced by Contract Manufacturing and licensing agreements with Melinta and AFT Pharmaceuticals. Generi
Q1 update: Generics outlook tighter, group range unchanged Despite the positive tone and tightened Generics guidance range, we see limited impetus for meaningful upgrades on the back of today’s Q1 trading update. The bulls will likely be pleased by the FDA approval of a novel branded product (for opioid overdose), indicating the CEO’s strategy to enhance the sophistication of Hikma’s Generics portfolio is working. However, we need more concrete evidence of positive earnings momentum to turn buyers. Our estimates, TP and Hold recommendation are unchanged. Amy.Walker@peelhunt.com, Miles.Dixon@peelhunt.com, Anchal.Verma@peelhunt.com
Benefiting from robust growth in the Injectables and Generic segments and an acceleration in sales in Europe and ROW, Hikma reported better than expected results in H2 20. The recently-approved Vascepa’s generic is likely to be a key source of growth in the coming years. Moreover, the upcoming launch of Advair Diskus should bolster growth in the mid-term. Success in cracking one of the most difficult drugs, Advair Diskus, reiterates Hikma’s generic manufacturing prowess.
Reducing forecasts and valuation for FY21E outlook We have updated our forecasts to align with: (i) FY20 actuals; and (ii) Hikma’s FY21E guidance. We are in line with all elements of the new outlook bar the top-line guidance for the Generics business, which we feel is excessively conservative. Nevertheless, the 5-7% cuts to our EPS overall (from USc201 to USc188 for FY21E), combined with the reintroduction of the peer multiple-based component of our valuation methodology, results in limited upside, underpinning our Hold recommendation on the shares. Amy.Walker@peelhunt.com, Miles.Dixon@peelhunt.com, Anchal.Verma@peelhunt.com 9-page note
FY20 results in line, but FY21 guidance implies downgrades Hikma’s FY20 results were as expected but the guidance implies high single-digit downgrades to our numbers and consensus, due mainly to a weaker outlook for the Generics business. The stock was already 11% down from its January highs before this announcement, and even after adjusting for today’s implied downgrades would have traded below 19x 2021 P/E at yesterday’s close. Nevertheless, we expect weakness in the stock today on the back of the outlook statement. Amy.Walker@peelhunt.com, Miles.Dixon@peelhunt.com, Anchal.Verma@peelhunt.com 2-page note
Hikma has performed exceptionally well through 2020, ensuring hospitals around the world have maintained supplies of critical injectable medicines, whilst also launching new complex generics and navigating the Branded/MENA business to a more virtual model. The market appears disappointed by the gui
Long-awaited Gx Advair approval is strong validation We already carry an above-consensus contribution from generic Advair in our 2021 Hikma forecast, and as such the announcement of FDA’s earlier-than-expected approval of this product won’t affect our estimates or valuation. More importantly, this validates Hikma’s ability to bring complex, high value respiratory generics to market, boosting confidence in its generic Ellipta pipeline, where the GSK branded portfolio grew 26% and generated £1.1bn US sales in 9M 2020. Buy. Amy.Walker@peelhunt.com, Miles.Dixon@peelhunt.com, Anchal.Verma@peelhunt.com
Despite the delays in the launch of Advair’s generic, Hikma has slightly upgraded its FY20 guidance – on the back of strong underlying demand for new launches, especially, a generic version of Vascepa. Management seems confident of Advair’s generic launch early next year and we reiterate our $150-200m peak sales potential for the drug.
Hikma’s H1 20 top-line acceleration was driven by COVID-19-related demand in Injectables and Generics and the economic recovery in Algeria propelled growth in the Branded segment. Combined with a favourable product-mix, the operating margin was up 1.5ppt. In the near term, new launches across segments should provide some respite against the ongoing pricing pressure. Given the company’s thin R&D pipeline and a robust balance sheet, M&A (probably in the biosimilars space) seems on the cards.
1H20 beat and guidance raise. Group sales increased by 9% to $1,132m (+4% vs BBG consensus), Core operating profit was $284m (+13% vs consensus) and Core EPS was 0.848c (+13% vs consensus). Importantly, FY20 guidance for divisions was raised: Injectable revenue is now expected to be $950m-980m (up from low to mid-single digit % growth – consensus was at $940m), with an operating profit margin between 38%-40% (was 35%-37%). FY20 Generics revenue is now expected at $720m- $760m (was $700-$750m), with a core operating margin of 21% (was 20%, if generic Advair is approved). We reflect these guidance raises into our forecasts, alongside greater potential for g-Advair to launch in 2H. Net, our mid-term EPS forecasts increase by a double digit %. Our PT concomitantly increases c.14% to 2500p. Still de-geared. As at end-1H20, Hikma leverage was 0.8x (net debt to core EBITDA), impacted in the half by the 12.8m share buyback from BI ($371m), paid through cash and existing facilities. Management have commented that they (continue to) explore acquisition opportunities, but given the organic growth, do not see a pressing need; they also flagged that the current market backdrop has the potential to delay deal-making for certain assets. Next catalyst likely FDA g-Advair decision-making. On today’s analyst call, management highlighted their (industry norm) g-Advair GDUFA date range of 6-12 months. With the average time taken at c. 9-10 months, to us, this suggests decision-making in 3Q. Divisional guidance suggests g-Advair could be an incremental £25m of core operating profit in FY20 (c.4% group). Notwithstanding a longer-term contribution part predicated on GSK US payer contracting behaviour, as well as the ultimate number of market entrants, we see reasons to be cautiously optimistic.
Good 1H20 results. Guidance raised 1H20 group sales increased by 9% to $1,132m (+4% versus a thinly populated BBG consensus at $1.085bn), Core operating profit was $284m (+13% versus consensus at $252m) and Core EPS were 0.848c (+13% vs consensus at $0.75, FY20 at $1.60). Guidance for divisions has been raised: Injectable revenue of $950-980m (from low to mid-single digit % growth – consensus was at $940), with an operating profit margin between 38%-40% (was 35-37%); Generics revenue of $720m-$760m (was $700-$750), with a core operating margin of 21% (was 20%, if generic Advair is approved). Operational performance The CEO comments that the group has delivered strong first half results, which are ahead of their initial expectations and reflect good progress in each of the three businesses. Selected comments regarding the divisions: Injectables – US growth reflects the strong demand for in-market products, (particularly those used in the treatment of COVID-19), and well as recent launches, more than offsetting increased competition on certain products and lower demand as a result of a slowdown in elective surgeries. Generics – good demand for in-market products and a better than expected contribution from new launches in the period. Branded – management flagged that Saudi Arabia and Egypt performed well, reflecting good demand for their marketed products, and Algeria delivered a strong performance, recovering from lower sales in 2019 due to political and economic disruptions. A good performance across most of the other MENA markets was also delivered, with a good contribution from new launches. Investor presentation A presentation for analysts and investors will be held today at 09:30 UK via webcast/phone. Our forecast, recommendation and target remain under review pending the call.
The COVID-19 outbreak led to strong demand for Hikma’s drugs across all segments in Q1. As the demand for generics could go up further as the situation worsens, Hikma could be a beneficiary. Also, as the top generic producers (India and China) are struggling due to COVID-19, shortage-led demand may arise and Hikma seems well-placed to exploit such opportunities, given its dynamic and flexible manufacturing facilities.
Driven by the acceleration in sales in Injectables and the sturdy show in Branded throughout the year, FY19 sales landed above the guidance range. Given that the robust performance of both these divisions is likely to continue, fuelled by new drug launches and licensing deals, the FY20 financial targets appear within reach. While the pricing pressure witnessed in Generics in H2 19 is here to stay, the division could be back on track led by new launches and increasing investments into differentiated drugs.
Solid FY19 Good FY19 results with an FY20 outlook that is broadly in-line vs current consensus expectations on core operating profit. FY19 group sales were $2,203m +1% vs consensus at $2,176m, Core operating profit was $508m +2% vs consensus at $498m and Core EPS was 150.4c, +2.3% versus consensus at 147.0c. The core operating profit beat was driven by the branded division. FY20 guidance by division: Management give FY20 guidance for Branded division revenue growth of mid-single digit % cc; Injectables revenue growth of low-mid single digit % cc (with a core operating margin in the range of 35-37%) and Generics revenue in the range of $700-$750m, with a core operating margin of c.20%. Divisional performance Injectables: FY19 sales of $890m,+0.6% vs consensus $884m and core operating profit of $338m, +1.3% vs consensus $334m.Performance reflects the breadth of the portfolio - strong sales of in-market products and growth from recent launches, more than offset increased competition on certain products. Generics: FY19 sales of $719m, +0.8% versus consensus $714m and core operating profit of $124m, -1.1% vs consensus $125m. The US retail generics market environment remains challenging, but price erosion was more than offset by strong demand for the portfolio, and by new product launches. Branded: FY19 sales of $583m, +3% vs consensus $568m and core operating profit of $129m, +4% vs consensus at $124m. Management flag Saudi Arabia and Egypt performing well, reflecting their strong market positions - good demand for products and new launches. They also delivered a good performance across most MENA markets, which more than offset significantly lower sales in Algeria (driven by political and economic disruption). Investor presentation A presentation for analysts and investors will be held today at 09.30 UK time at FTI Consulting, 200 Aldersgate, Aldersgate Street, London EC1A 4HD. To join via conference call dial: 08006406441, access code: 442936.
Hikma reported a strong performance in H1 19, with revenue growth of 8% (at CER), primarily attributable to a better-than-expected performance of Generics (+11%), along with an in line performance of Injectables (+7%) and Branded (+6%). Lower COGS, due to the closure of the Eatonton facility, along with a higher non-operating income, trickled down into higher profitability (at the reported level). Management upgraded its FY 19 guidance on the back of strong results across the portfolio.
Minimal changes to forecasts: As Kerry’s H119A results and guidance were broadly in line with expectations, we only tick our FY19E adj. EPS forecast up 0.8% to 393.4c on a 1.6% increase in revenue to €7.18bn and 22bps contraction in EBITA margin to 12.3%. Given currency volatility, we expect that the 3.3% FX tailwind enjoyed by Taste & Nutrition in H119A will turn into a 1.4% headwind in H219E. We currently expect a 0.3% FX tailwind for Consumer Foods, but that could well reverse, depending on sterling volatility. Acquisitions always on the menu: Acquisitions contributed 4.7% to Group H119 revenue growth, following a 3.6% contribution in FY18A. Having spent €327.2m on three acquisitions in H119A, we forecast acquisitions will add 4.0% to H219E revenue. In the H119 conference call, management noted that acquisitive activity over the next 18 months will “be quite reflective of the last 18 months” (i.e. a spend of c.€800m). We currently forecast that Kerry will have net debt of €1.88bn at FY19E year-end, which would represent 1.8x ND/EBITDA. “Stretching” the balance sheet to 2.5x ND/EBITDA could release up to €675m in H219E. At current multiples (15.0x EBITDA), this level of spend on acquisitions could boost FY20E adj. EPS by 2.5%. Trading close to fair value: Kerry is trading at 26.4x FY19E P/E and 19.8x EV/EBITDA, a 14.8% premium to its peers (ex Chr. Hansen). We value the company on a DCF basis, which on our revised numbers ticks up marginally to €104.90 from €104.59 before. We therefore leave our TP unchanged at €105. As this implies a FTR of 2.0%, we retain our Hold call.
HIK IRES KYGA
Good 1H19 Good 1H19 results, outlook raised. 1H19 group sales increased by 7% to $1,043m (we envisage this is in line with consensus), Core operating profit was $246m (+15%) and Core EPS was 72.7c (vs INVe FY19E at 135c). New guidance for divisions: Management raised full-year expectations for its Generics division and expects Injectables to be at the higher end of the previous guidance range. Generics revenue guidance is now $690m-$720m (was $650-700m), with a core operating margin of 16%-18% (was mid-teens %). Injectables guidance is now for revenue of $870m-$900m (was $850-$900m), with a core operating margin of 36% to 38% (was 35% to 38%). Hikma remains in a strong financial position, with net debt/EBITDA now c.0.6x. Divisional performance – selected comments Injectables – demand for in-market products and recent launches are offsetting competition on some products and the reduced sales of certain market shortage products. Generics – strong demand for in-market products and recent launches more than offset price erosion. Branded – management flagged Saudi and Egypt (largest markets) with double digit % revenue growth, reflecting strong demand for portfolios and new product launches. Investor presentation A presentation for analysts and investors will be held today at 09:30 UK time at FTI Consulting, 200 Aldersgate, Aldersgate Street, London EC1A 4HD. To join via conference call dial: +44 (0) 20 3936 2999 or +1 646 664 1960, access code: 706288.
Hikma maintains FY 19 guidance in the Q1 trading update. Not much is disclosed in the trading update, but guidance implies 0-4% growth for FY 19.
Hikma’s H2 18 top-line missed our as well as the street’s expectations marginally. Revenue was up by 4.4% to $1.09bn, driven by the robust performance by the Generic segment (+14%). A decline in the Branded segment (-1%; FX headwinds played a major role), was compensated by a marginal increase in the Injectables (+1%). On the profitability front, the EBITDA margin was up by 5.6ppt to 27%, attributable to a reduction in COGS (47.8% of sales vs 50.3% in H2 17; due to the consolidation of the manufacturing facilities), S&M (6.9% of sales vs 10% in H2 17) and G&A (8.8% of sales vs 10.7% in H2 17), partially offset by an increase in R&D (7.7% of sales vs 5.6% in H2 17). All FY 18 sales numbers are at CER unless specified otherwise. Revenue was up by 8% to $2.07bn, driven by strong across the business segments – Injectables (+6%), Branded (+5%) and Generic (+13%). The core operating margin was up by 2.3ppt to 22.2%, benefiting from the closing down of the Eatontown plant and the integration of the Memphis distribution into the Columbus facility – largely pertaining to the generic business (core operating margin of 13.4% vs 3.6% in FY17), supported by a minor increase in the Branded margin (21.6% vs 21.3% in FY 17), partially offset by a marginal decline in the Injectables margin (40.3% vs 40.6% in FY 17). We expect the manufacturing efficiencies to help realise savings of $20-30m annually from 2019, implying a higher operating margin in the Generics business in the coming years (management targets mid-teens vs 13.4% in 2018). FX had a negative impact of 1ppt on sales. Geographically, the US (62% of total revenue) grew by 8% to $1.3bn, benefiting from the opioid drug-shortage and the strong uptake of new generic drugs, partially offset by a decline in the legacy injectables portfolio and the ongoing pricing pressure in the generic industry. MENA (32% of total revenue) was up by 4.1% to $656m, supported by the strong uptake of the Remsima (biosimilar) in the Injectables segment (+21%), and the solid performance of the Branded segment in Egypt, mitigated by a weak performance in Saudi Arabia and Algeria along with the FX headwinds of 4%. Europe and ROW (6% of total revenue) was up by 15% to $121m, driven by the recent launch of lyophilised products. Our concern was the weak guidance for FY19 — Injectables (revenue $850-900m; core operating margin of 35-38%), Generics (revenue $650-700m; core operating margin in mid-teens), and Branded (revenue growth in mid single-digit), implying group revenue in the range of $2.07-2.17bn.
Hikma’s solid performance continued in Q3 18 (trading update), led by the opioid-shortage driven demand in the injectables business and a sustained strength in the generics business. It has upgraded its FY 18 revenue guidance (to $2.06-2.11bn vs the previous estimate of $1.94-2.04bn) for the second time in a row. The Injectables division is now expected to generate revenue of $825-850m (vs $825-850m previously) along with a core operating margin of 39-40% (vs mid-to-high 30s previously). The Generic division’s revenue guidance now stands at $675-700m (vs $600-650m previously), with a core operating margin in the low-teens (vs mid-to-high single-digit previously). The growth guidance for the Branded division was reiterated at a mid single-digit. The company held its capital markets day on 8 November, at which the key takeaways were: Segment-wise objectives – Injectables: add complexity/speciality to the portfolio to increase the differentiation; Generics: increase the number of projects in the thin pipeline; Branded: prioritise projects and continue partnering for in-licensed products Mid-term target – Injectables’ top-line expected to grow at mid-high single-digit with a normalised operating margin of low-to-mid 30s and Generics to focus on improving the bottom-line with a targeted gross margin above 40% and operating margin in the mid-teens. Maintain the R&D expenditure at 6-7% of sales (in line with the generic industry standard of ~6%) over the next five years, with a greater focus on productivity (target ~10% of sales from new launches, during this period vs 3% in 2017. Two major areas of concern for the company are: a) a thin R&D pipeline in the generic business, and b) in 2019, mid-single-digit price erosion is expected in the injectables and generic businesses.
Hikma reported a robust performance in Q2, driven by a drug shortage in the US, excellent demand pick-up in MENA, resilient generics and the introduction of new products. We have upgraded our target price based on improved management quality, reflecting in the current execution and the company’s agility in quickly picking up any demand surge or supply woes at rivals. However, the deteriorating operating environment for generics and a limited R&D pipeline remain a major concern, in our opinion.
In its Q1 18 trading update, Hikma put on a brave face and maintained its FY 18 guidance – group level. The injectables business is expected to deliver sales of $750-800m, but the core operating margin is likely to retreat to low-to-mid 30s from the earlier level of the 40s, as the shortage-driven growth moderates and pricing power diminishes. The pressure in the generics business is unlikely to dissipate with additional expenses towards repeat trials for generic Advair Diskus. FY18 revenue is likely to come in at $550-600m, with core operating margin in the low single-digits. The branded segment, as usual, is expected to be H2-heavy with the full-year revenue growth expectation of mid single-digits.
Hikma has appointed Sigurdur Olafsson as CEO, with immediate effect. Olafsson will also join Hikma’s board of directors, pending approval at the next AGM in May. He will be taking over from the current CEO and majority shareholder Said Darwazah, who will be retaining his position as Executive Chairman. What is unique about the appointment is that the incoming CEO will be the first outsider to head Hikma since its inception in 1978 (the position has only been held by Said and his father Samih prior to the current announcement). Sigurdur Olafsson comes with strong credentials – over 25 years of experience in the pharmaceutical industry and extensive exposure in the generics space (his last two stints were with Teva and Actavis, respectively, where he was heading the generics operations).
The Q3 17 trading update was another in a series of disappointments for the generic pure play, afflicted with serious pricing pressure (mid-teens) and intensifying competition. The third successive guidance downgrade was triggered by a combination of the Roxane portfolio failing to take off (including the flagship Advair generic, stuck in disputed territory with the FDA) and the Injectables space fast losing its de facto exclusivity. 2018 is likely to be no different. The valuation looks attractive but a significant re-rating seems unlikely.
Hikma reported a disappointing set of H1 17 results, with both top-line and profitability coming below the Street’s expectations. H1 17 revenue increased 1% to $895m (5% in cc, including two months of contribution from the acquisition of Roxane/ West-Ward Columbus – acquisition completed on 29 February 2016) with all three segments underperforming (particularly the Branded and Injectables segments). While the Branded segment was undermined by the challenging market situation in the Middle East (further exacerbated by currency woes: -16% reported, -6% cc), Injectables remained soft due to intensifying competition (+1% reported, +3% cc). On the other hand, revenue in the Generics segment was up 19% yoy to $305m, although this was fully attributable to the two-month contribution from Roxane (adjusting for this would have resulted in a yoy decline – not quantified). The adjusted operating profit declined c.4% to $152m (margin deteriorated c.90bp to c.17%), due to increased competition and pricing pressure in the US (also echoed by peers Teva, Mylan and Endo Pharma) and lower profitability in the Branded business. Geographically, the US continued to be the primary growth driver (predominantly due to the additional two-month benefit from West-Ward Columbus), recording a c.11% yoy growth (despite the pricing pressure). However, this was offset by the c.15% decline in the MENA region, primarily due to forex headwinds (devaluation of the Egyptian pound). Factoring in the H1 weakness, management has downgraded its full-year guidance for the second straight quarter this year – revenue expected to be $2bn (earlier $2-2.1bn). For the Generics segment, top-line expectations have been revised downwards to c.$620m (vs.$670m previously) with a core operating profit of c.$30m (c.100bp decline in margin vs. previous expectation of a slight improvement). The top-line outlook for the Injectables business has also been revised downwards to c.$775m (earlier $800-825m) while the Branded segment is now expected to remain flat in reported terms (earlier low single-digit growth). Margin expectations for the latter two segments remain unchanged.
As expected, Hikma downgraded its FY 17 guidance (released as part of the Q1 17 trading update) following the FDA’s complete response letter (CRL) on its abbreviated new drug application (ANDA) for GSK’s Advair generic (on 10 May 2017). Management now expects the full year revenue to be in the range of $2-2.1bn (previously $2.2bn). Topline expectations from the Generics segment have been revised downwards to c.$670m (vs.$800m previously, including a c.$90-100m contribution from the Advair generic). Management has also hinted about increasing pricing pressure on the legacy generics portfolio, downgrading its profitability guidance for the segment from a ‘significant improvement’ to the current ‘slight improvement’. Outlook for the other two segments (Injectables and Branded) remains unchanged.
After several guidance downgrades during the year, Hikma’s FY 16 results came in above our and consensus estimates, with the outperformance primarily coming from the Injectables division. Revenue was up 35% yoy to $1.95bn (+39% at cc), mainly driven by the consolidation of ten months contribution from the Roxane Laboratories acquisition (West-Ward Columbus). Adjusted operating income fell 3% to $382m (the margin plummeted 770bp to 19.6%), mainly impacted by high overhead costs of West-Ward Columbus, high R&D investments and negative forex impact. Furthermore, impacted by higher exceptional costs (primarily related to West-Ward Columbus), operating profit and net income declined 21% and 38%, respectively, at the reported level. The company announced a final dividend of $0.22 per share, taking the full-year dividend to $0.33 per share ($0.32 in 2016). For FY 17, management sees revenue of $2.2bn at cc (vs. our previous estimate of $2.3bn).
Hikma gave a lacklustre Q3 16 trading update (no numbers) and has lowered its FY 16 revenue guidance (at cc) to $2bn from the previous $2-2.1bn. This was primarily on account of the continued sluggishness of the Generics segment. The Branded segment is also faring below expectations, besides facing higher-than-anticipated currency headwinds. The only positive is the sustained outperformance of the Injectables segment.
Hikma gave a profit warning disguised in the form of a trading update (revealing only top-line numbers) ahead of its half-yearly results due on 24 August 2016. In H1 16, total revenue (excluding other income) came in at $877m, up 24% yoy, benefiting from the inclusion of four months’ contribution from the Roxane acquisition, now called West-Ward Columbus (excluding Roxane, revenue was down c.3.5% yoy). This came slightly below consensus estimates, mainly due to lower-than-expected revenue in the Generics segment (came in at $257m). While the Injectables segment revenue was up 3% to $356m, the Branded segment revenue fell 7% to $264m. For the full year, management maintained its total revenue guidance at $2-2.1bn. However, and more importantly, it downgraded its core operating profit guidance to the tune of c.$30m (c.8% of the FY 15 adjusted operating profit) – while the Generics segment’s core operating profit outlook has been revised downwards to $30-$40m (implying a margin of c.5-6% based on mid-point of revenue guidance of $640-670m) from an earlier low double-digit margin, the profit outlook for the Injectables segment has been pulled up slightly (management has upgraded core operating profit margin guidance for the segment to 38% from the previous 36%). However, this will not be able to compensate fully for the expected decline in the Generics segment.
The past year has been a turbulent one for Hikma. A shortage-fuelled growth spurt and a resulting guidance upgrade had heralded the Jordanian company’s entry into the FTSE 100 in March 2015 (following the c.25% rally since the beginning of the year), making it only the fourth pharma constituent to become a component of this ‘blue-chip’ index. Fast forward a year, however, and multiple downgrades later, investor enthusiasm towards the company had waned, resulting in the stock being kicked out of the index in March 2016. However, the relegation proved short-lived, with the recent uptick in performance (Q4 15 and Q1 16 were slightly ahead of the otherwise ‘conservative’ market expectations), a string of recent drug approvals (13 to date in 2016) as well as improving sentiment towards the benefits of the Roxane acquisition (in the wake of the sharp sell-off post the downward revision to Roxane’s FY 16 and 17 guidance) triggering the company’s re-entry into the index in June 2016, after only a short three-month absence. Operationally, after a discouraging FY 15 (revenue down 3%, up 2% organically vs. 9% in FY 14) the last quarter has seen a gradual recovery in the company’s core businesses. The Injectables segment, following a flat FY 15 (as expected due to a tough comp base, >30% growth in FY 14, 3% cc growth) is back on the upswing, supported further by steady approval and relaunch of Bedford products. Management has guided for mid-to-high single digit revenue growth in FY 16, with the operating margin at a healthy c.36%. The MENA focussed Branded business is expected to be H2 16 weighted with low-double-digit topline growth in cc (13% cc growth in FY 15) but is likely to face increased forex headwinds (higher than earlier estimated) as well as an oil-price-triggered slowdown, courtesy of its Gulf exposure. Generics continued to register a yoy decline (>30%) on lack of shortage-driven opportunities but is expected to benefit from the Roxane acquisition (FY 16 segment revenue guided to be $640-670m, low double-digit operating margin). Resolution of the Colchicine patent infringement case by Takeda (with the court ruling in favour of Hikma) should further embellish growth potential for the segment. Management has maintained its full year guidance of revenue in the range of $2.0-2.1bn (including a ten-month contribution from the acquisition of Roxane Labs).
Hikma reported preliminary results in line with consensus forecasts with Revenue of $1,440m (PGe $1,485m, consensus $1,456m) and EPS $1.27 (PGe $1.28, consensus $1.25). Revenue guidance for group revenues in 2016 is $2.0- $2.1bn with ‘continuing momentum into 2017’. In light of the recent share price moves, which we consider overly discount growth prospects and positioning, we move to Buy.
Following receipt of new information from Boehringer Ingelheim and the conducting of further due diligence, Hikma now expects Roxane's unaudited revenue for 2015 to be lower than previously anticipated. This is driven, fundamentally, by higher than expected rebate levels. Correspondingly the company has today announced revised terms for the deal, reducing the upfront gross cash consideration by $535m to $647m (previously $1.18bn) with the issuance of 40,000,000 consideration shares unchanged from the number agreed on 28 July 2015.
Hikma’s sluggish run continued into the third quarter (trading update), the key highlight of which was the second successive guidance downgrade for the generics business – FY 15 revenue is now expected to be $150m from the previously indicated range of $175-200m. Of greater importance, however, was the profit warning, with management now guiding for the segment’s FY 15 operating margin to be in the ‘high twenties’, nearly half of its FY 14 operating margin of 52%. Moreover, an adverse currency impact has also resulted in a slight guidance downgrade for the flagship Branded segment (from high single-digits to now mid single-digits), although constant currency growth remained strong. While no numbers have been provided for the Injectables segment, management has indicated a strong performance (following the faster than expected relaunch of Bedford's products), particularly in terms of profitability.
This morning's trading update, as we noted in our morning note, saw Hikma announce it was ‘performing well' across most of its businesses in the year to date – notably injectables and the MENA market – but with the generics business below expectations due to slower than expected growth in colchicine sales.
This morning Hikma has announced a trading update commenting that it is ‘performing well' across most of its businesses in the year to date – notably injectables and MENA market – but with the Generics business below expectations due to slower than expected growth in cochicine sales. New guidance for the Generics business today is for c.$150m, down from the previous range of $175-$200m.
With shortage-driven opportunities (Hikma’s primary growth lever in recent years) coming fewer and farther between, Hikma’s H1 15 results were subdued (behind the Street’s and our expectation) — revenue was down 4% on a reported basis (flat organically) compared to 16% and 9% growth in H1 14 and FY 14, respectively. Strong rebound in the Branded segment (16% cc growth, 9% reported) and stable returns from Injectables (3% cc growth despite tough comparables) was offset by the higher than expected dip in the Generics segment (down 38% vs. a 3% decline in H1 14 and 19% in FY 14). This also weighed on profitability (the Generics segment has historically claimed the highest margins) with adjusted EBITDA and operating profit declining by c.400bp each (to 32.6% and 27.9%, respectively). While maintaining its full-year outlook for FY 15 (2% top-line growth, 6% cc), management has trimmed its revenue guidance for the Generics segment to $175–200m from the previous c.$200m. As a reminder, in post H1 15 developments, Hikma has acquired Boehringer Ingelheim’s US generics business – Roxane Laboratories, its largest transaction to date (deal expected to complete in Q4 15), for $2.65bn in a ‘cash plus stock’ deal ($1.18bn in cash and the remaining through the issue of 40m new shares – 16.7% of issued capital). Management expects the business to contribute $725-775m in sales by 2017 and achieve an EBITDA margin of c.35% in the medium term (2018 per our estimates). With the acquisition, the company will achieve a more balanced model, with generics contributing c.35-40% of the revenue (15% in FY 14).
Hikma reports interim results this morning with Revenue of $709m – in line with H1 2014 in constant currency, as expected, or down 4% on a reported basis – and Group adjusted operating profit of $204m (1H14: $244m), EPS $0.67. Good performances from Branded and Injectables are offset by the expected decline in specific market opportunities in Generics. Full year Group revenue guidance is maintained at around 6% growth in constant currency, or 2% on a reported basis. The partnership with Vitabiotics, announced today, should broaden Hikma's MENA portfolio with a number of OTC brands. Stay with Hold.
