Berenberg upgrades Hikma Pharmaceuticals to ‘buy’

Berenberg upgraded Hikma Pharmaceuticals on Tuesday and lifted the price target to 2,400p from 2,100p as it said "clear progress" had been made.

It said that after almost two years with a ‘hold’ rating, it believes the time is now right to upgrade the stock to a ‘buy’.

"We have more confidence in the growth outlook across the business (including the US Generics business) for the next year and we also have more certainty on the business’s leadership, following a period of management change - this included the hiring of a new permanent CEO (an internal appointment who knows the business well), as well as a new head of Injectables and US Generics," the bank said.

Berenberg said Hikma continues to maintain a strong balance sheet, with leverage at 1.3x and $1.5bn of firepower available for further M&A (in addition to the recently announced Xellia Pharmaceuticals deal).

"We also think that the returns Hikma offers are excellent, with return on invested capital averaging 16% over the last three years.

"In this context, the valuation of 11.8x price-to-earnings does not look demanding, in our view."

At 0915 BST, the shares were up 1.8% at 2,010p.