Berenberg stays at 'hold' on Hikma Pharmaceuticals

Berenberg said that although Hikma shares have given up some of their gains over the past month, down roughly 11% over the period, these moves were similar to those of generic and speciality pharma sector peers. However, it also said it does not see any near-term catalysts to help Hikma re-rate.

The German bank updated its model to factor in new guidance across all three divisions, as well as higher finance costs of roughly $85.0m.

"Our price target is unchanged and, with shares trading on c8x EV/EBITDA (in line with sector peers), valuation looks fair. Any visible improvement or deterioration in the US injectables business would make us revisit our investment case," said Berenberg.

Injectables' core operating margin was expected to be closer to 36%, rather than 37%, and revenue growth was seen at roughly 7%, down from 9%, in 2023, mainly due to supply constraints in the US, something management said was a temporary problem.

However, the analysts pointed out that organic top-line trends were already looking light in the first half, tracking 3-4% after stripping out the 5% top-line benefit from mergers and acquisitions. Additionally, Berenberg noted Hikma's ramp-up of sterile drug compounding in the US was "taking more time than expected" as it continues to wait for state licences from New York and California.

"Hikma provided a better-than-expected margin target for the branded division of 23%, thanks to strong MENA (Middle East and North Africa) demand and operational efficiencies," Berenberg said.

"However, FX remains volatile, and the MENA region (with ongoing geopolitical tensions) remains difficult to forecast. Hikma confirmed it has minimal exposure (both sales and production) to affected countries in the region."

Reporting by Iain Gilbert at Sharecast.com