Berenberg initiates coverage on Hikma Pharmaceuticals at 'hold'

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