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Egypt pharma 4Q20 preview | The final chapter of a lost year

Expect a weak quarter across the board, on further delay in sales rebound. Egypt retail pharma sales are expected to grow 8-11% y-o-y in 4Q20, boosted by the sale of non-COVID-19 related drugs. This, combined with a feeble export and tender business, would lead to a 22% average y-o-y drop in earnings for the pharma producers under our coverage, mainly on c7pps margins compression (Rameda and AXPH) and higher debt cost (EIPICO). ISP is seen delivering a flattish bottom line, as the decline in EBITDA, on lower-than-usual growth in sales and higher discounts paid, is seen offset by lower interest expenses, on expected improvement in WC management.

All eyes on 2021 awaited rebound. A delay in rebound in non-COVID-19 related drugs is expected to harm drug makers’ earnings in 4Q20. Nevertheless, a gradual pick-up in patients’ traffic, coupled with higher ASP from new launched molecules, should pave the way for a c15% rise in pharma market value in 2021e. We expect Rameda and ISP to outperform their pharma peers amid current fundamental outlook and stocks’ valuation levels. Rameda is seen delivering the strongest rebound in earnings, while ISP is currently trading at the steepest discount to the historical average.

Rameda: The play with the strongest rebound. 2021 is a crucial year for the drug makers’ equity story, capitalising on the company’s 2019 EGP250mn expansion, as well as substantial improvement in ASP (+40% y-o-y in 2020e), stemming from a set of new launches (eight in 2019; six in 9M20) and acquisitions (three in 9M20). We look for a 23% y-o-y rise in revenues in 2021e, boosting EBITDA margins by 440bps to 30.3%, leading to 43% and 65% rises in EBITDA and net income, respectively. Rameda trades on a 2021e P/E of 15x, with a 2020-22e EPS CAGR of 52%.

Ibnsina: A proxy to the sector at an undemanding valuation. While we expect ISP’s 4Q20 earnings to miss management guidance of cEGP100mn, we believe investors’ focus will be on 2021 outlook and guidance. Now that the Syndicate of Pharmacists’ boycott has ended, we see ISP well poised to deliver on the expected 48% y-o-y rebound in earnings in 2021e. We look for a 2021e bottom line of EGP420mn, translating into a 12x P/E, well below the distributor’s historical average of 15-16x. ISP’s jump in earnings is seen stemming from: i) an 18% rise in revenues, ii) a 20-30bps margins expansion, coming from a low base, and iii) stable interest expenses.