Berenberg initiates coverage on Hikma Pharmaceuticals at 'hold'

Analysts at Berenberg initiated coverage on drugmaker Hikma Pharmaceuticals at 'hold' on Tuesday, stating it was "waiting for the tide to turn".

Berenberg said it was "encouraged" by Hikma, a global pharmaceuticals company, and its "strong balance sheet and guidance" for both its injectables and branded business.

However, the German bank, which slapped the stock with a 1,440.0p target price, said the lack of visibility on its generics business and uncertainty about the choice of a new permanent chief executive kept it on the sidelines for now.

"Hikma is forecasting price declines in the low double digits as well as volume declines; as a result, margin guidance for 2022 was cut from 24-25% in February to 15-16% in August. According to industry experts, this seems to be an industry-wide trend driven by a slower rate of complex generic (non-injectable) approvals and the concentration of bargaining power lying with three purchasing groups in the US," said Berenberg.

"Hikma trades on an EV/EBITDA of 6.6x which is a discount to sector peers on 8.3x. This seems fair as we (and consensus) forecast a 3% basic EPS CAGR over 2021-2024, which is below the 10% CAGR forecast for sector peers."

Reporting by Iain Gilbert at Sharecsat.com