Krka1Q18: Strong start of the year especially in terms of margins.
Krka Group reported sales revenues of EUR 338.3m for 1Q18, up 5.4% based on 10% volume growth, and with sales growth present in all regions. On the key Russian market, Krka achieved a 1% growth (to EUR 74.5m) with 17% volume growth and 13% growth in local currency. On the markets of West Europe, sales growth was 3.3% YoY. Sales growth is only marginally better than we expected, however a bigger positive surprise came from profitability levels. Namely Krka Group achieved EBITDA of EUR 90.4m in 1Q18 and profit of EUR 49.5m, up by 30.0% and 16.0% respectively. The discrepancy is due to higher negative FX related items, booked below EBIT, while margin improvement came due to improved product mix and cost reduction. Balance sheet remains strong in advance of dividend season, where management proposes a dividend of EUR 2.9 per share, yielding almost 5%. Given the 1Q18 we believe Krka is on a good track to overdeliver their EUR 153m profit plan as well as beating our estimates. We have nevertheless stuck with them for now (with revision possible after 2Q17), as well as with our target price of EUR 65 per share. Consequently we believe buy recommendation is more than warranted.
Krka is a public generic pharmaceutical company based in Slovenia. Co. is engaged in the development, production, sale and marketing of human health products (prescription and selfmedication pharmaceuticals and cosmetics), animal health products and health resort and tourist services. Co. focuses on a range of generic prescription pharmaceuticals, which are marketed under Co.'s own brands. Co. offers customers in over 70 countries a broad range of prescription pharmaceuticals, self-medication products and animal health and cosmetic products. Co.'s activities are supplemented by health resort and tourist services of Terme Krka.
ALTA Invest, investicijske storitve, d.d., (ALTA Invest, investment services, Inc.) is a part of ALTA Group, the biggest financial non-banking group in Slovenia. ALTA Invest has around 28% market share on the domestic Ljubljana Stock Exchange and has more than EUR 95m of assets under management.
Our trading advantage is our execution of large trading blocks with low impact on the market. We offer trading on several platforms on numerous markets, with a wide variety of financial instruments. Our advantage is also a research department, which is both sell side and buy side and has the far most extensive and regular coverage of domestic companies. We cover 9 companies on Ljubljana Stock Exchange, which is around 90% of Mcap on LJSE – and here we are practically the only local broker providing this kind of extensive and regular coverage for Slovenian companies.
A part of ALTA Group are ALTA Skladi, a mutual fund asset management company with roughly EUR 260m of asset under management. ALTA Group is also extensively involved in corporate finance projects and raised considerable assets (fixed income and equity) in the last two years for several companies.
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