EUR 205.41 For Business Accounts Only

Poised to outperform Egypt’s growing pharma market

A unique story offering decent upside; Initiate with OW. Rameda is the fastest growing pharma player among the top companies in Egypt, growing at a 2013-18 sales CAGR of 43%, c2x peers’ average. This was fuelled by the Group’s active approach of new product launches (launching c40 molecules over 2013-18, out of the current 67 molecules) coming at higher pricing points, boosting the company’s sales and margins. Rameda trades on a 2020e P/E of 12.6x, a c40% discount to peers, unwarranted, in our view, given the company’s superior growth profile (2020-22e EPS CAGR of 34%) stemming from further launches (12-15 p.a.) and BS deleveraging. We initiate coverage on Rameda with a TP of EGP7.00/share, representing 52% upside.

Best play to capture Egypt’s fast-growing pharma industry. Egypt’s ever-growing pharma market delivered 23% y-o-y growth in 9M19, underpinned by a pick-up in affordability, a growing population, and the introduction of higher priced drugs. We expect Ramada‘s sales to continue outgrowing the pharma market by 5ppt, with a 2020-22e CAGR of 22% vs. 17% for the market, chiefly boosted by the company’s aggressive launching strategy and growing portfolio of chronic products. The implementation of the Universal Healthcare Act, increased health awareness, and gradual recovery in consumption should further fuel volume growth.

New molecule launches, at higher price points, lend support to margins. We see room for further EBITDA margin expansion, reaching c39% by 2022e from 36% in 2018, on: i) continued introduction of higher priced molecules, ii) the declining cost of APIs, as new molecules mature, iii) a decreasing production cost post the company’s expansion, and iv) economies of scale. This, along with Rameda’s deleveraging, leads to 2020-22e EBITDA and EPS CAGRs of 25% and 34%, respectively.

4Q19 results to reflect operational normalisation. Rameda’s production facility expansion in 9M19 resulted in a significant disruption to production. Nevertheless, the Group successfully launched eight new molecules during 2H19 and normalised production has resumed as of Sep-19. Accordingly, we expect the Group to deliver a healthy 4Q19e EBITDA margin of 36%, in line with 2018, and EGP53mn net profit, also in line with 4Q18. We believe these results should trigger an upward rerating in the stock. Conversely, we see any delay or unsuccessful new launches as a main downside risk to our numbers.