Hikma Pharmaceuticals Plc – Value Analysis (LONDON:HIK) : December 19, 2017

Capitalcube gives Hikma Pharmaceuticals Plc a score of 66.

Our analysis is based on comparing Hikma Pharmaceuticals Plc with the following peers – Dechra Pharmaceuticals PLC, BTG plc, GlaxoSmithKline plc, AstraZeneca PLC, Summit Therapeutics plc, Sinclair Pharma plc and Vectura Group plc (DPH-GB, BTG-GB, GSK-GB, AZN-GB, SUMM-GB, SPH-GB and VEC-GB).

Investment Outlook

Hikma Pharmaceuticals Plc has a fundamental score of 66 and has a relative valuation of UNDERVALUED.

Fundamental Score

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Company Overview

  • Compared to peers, relative underperformance over the last year is in contrast with the more recent outperformance.
  • It trades at a lower Price/Book multiple (1.37) than its peer median (4.16).
  • The market expects HIK-GB to grow more slowly than its peers and for its median ROE to decline.
  • HIK-GB‘s relative asset efficiency and net profit margins are both around the median level.
  • Change in the company’s annual revenues seems to be coming at the expense of earnings.
  • Over the last five years, HIK-GB‘s return on assets has declined from above median to about median among its peers, indicating declining relative operating performance.
  • The company’s relatively high pre-tax margin suggests tight control on operating costs versus peers.
  • While HIK-GB‘s revenues growth in recent years has been around the peer median, the stock’s below peer median P/E ratio suggests that the market likely sees the company’s long-term growth prospects to be fading.
  • The company’s level of capital investment seems appropriate to support the company’s growth.
  • HIK-GB has the financial and operating capacity to borrow quickly.

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Leverage & Liquidity

HIK-GB has the financial and operating capacity to borrow quickly.

  • With debt at a relatively low 13.64% of its enterprise value compared to an overall benchmark of 25% (Note: The peer median is currently 6.04%), and a well-cushioned interest coverage level of 7.07x, HIK-GB can probably borrow quickly. We classify the company as Quick & Able in terms of its capacity to raise additional debt.
  • Of the 7 chosen peers for the company, only 4 of the stocks have an outstanding debt balance. Companies with no debt include BTG-GB, SUMM-GB and VEC-GB.

HIK-GB has maintained its Quick & Able profile from the prior year-end.

  • HIK-GB‘s interest coverage is similar to last year’s low of 6.75x and remains below the 2014 high of 17.68x.
  • Though its interest coverage has remained relatively stable at 7.07x compared to 2015, its peer median has decreased to 7.24x from 10.72x during this period.
  • Interest coverage rose 3.81 points relative to peers.
  • HIK-GB‘s debt-EV continues to trend upward and is above (but within one standard deviation of) its four-year average debt-EV of 12.55%.
  • While its debt-EV increased to 13.64% from 10.53% (in 2015), its peer median decreased during this period to 6.04% from 11.73%.
  • Relative to peers, debt-EV rose 8.79 percentage points (and is now higher than its peer median).

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Key Liquidity Items

Company Debt/Enterprise Value (%) Current Ratio Interest Coverage (x) Cash Flow To Total Debt (%)
Dechra Pharmaceuticals PLC 10.63 2.79 7.42 41.87
BTG plc 0 2.32 No interest exp 999
GlaxoSmithKline plc 20.09 0.64 7.4 40.5
AstraZeneca PLC 18.12 0.94 2.8 21.29
Summit Therapeutics plc 0 4.06 No interest exp 999
Sinclair Pharma plc 1.46 1.13 -9.96 -831.18
Vectura Group plc 0 2.65 -87.75 999
Hikma Pharmaceuticals Plc 13.64 1.9 7.07 43.08
Peer Median 6.04 2.11 7.24 42.47
Best In Class 1.46 4.06 No interest exp 999

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Company Profile

Hikma Pharmaceuticals Plc engages in developing, manufacturing, and marketing branded and non-branded generic pharmaceutical products. It operates through the following segments: Branded, Injectables, Generics, and Others. The Branded segment offers selling of branded generics and in-licensed patented products. The Injectables segment includes manufacturing of sterile injectables. The Generics segment focuses on the U.S. market for oral generics. The Others segment comprises of Arab Medical Containers Ltd., International Pharmaceutical Research Center Ltd. and the chemicals division of Hikma Pharmaceuticals Ltd. (Jordan). The company was founded by Saaid Samih Taleb Darwazah in 1978 and is headquartered in London, the United Kingdom.

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