EUR 127.99 For Business Accounts Only

Egypt pharma | Another bump on the road hindering awaited rebound

Cautiously optimistic about 2021 rebound. Retail pharma sales bounced back to their growth trajectory as of Jun-20, with 3Q20 figures reflecting a 7.5% y-o-y growth, followed by c11% y-o-y jump in Oct-20 numbers in value terms (volumes up a meagre 1%). Despite coming in line with our estimate, October’s rebound was underpinned by another rise in COVID-19 related drugs, signalling the onset of the COVID-19 second wave, further delaying the awaited rebound in non-COVID related drugs volumes. Consequently, we revised our 2021e retail growth estimate downwards by 3pp to 14.5%. This, coming in tandem with the restructuring of the Unified Medical Procurement Authority (UMPA) (the tender business regulator) cut our 2020e total market value by 2% to EGP119bn (up 7% y-o-y).

Cut TPs by c9%; Favouring defensive, actively managed portfolios. We reiterate our preferences to smaller drug producers, namely Alex Pharma and Rameda, offering a decent growth profile and well-selected, defensive portfolio. We cut our TP for Rameda, ISP, and EIPICO by 8%, 11%, and 15%, respectively, to reflect the downward revision in our pharma market assumptions, as well as the current intensifying competition and growing price pressure dictated by the newly established UMPA.  

AXPH: A deep value play; Rameda growth to resume from lower base. AXPH offers the perfect mix of a: i) solid FY20-22e EPS CAGR of 18%, boosted by a 140% capacity increase, freeing up capacity to non-COVID drug sales, ii) healthy BS, with a net cash position of EGP167mn, and iii) FY21e dividend yield of 9%, trading on a highly attractive FY21e P/E of 3.6x. Despite being hit in 2020e by the drop in export and tender sales, Rameda’s awaited rebound is just around the corner. The stock trades on a 2021e P/E of 16.6x, while offering a 2020-22e EPS CAGR of 52%.

ISP, EIPICO rebound hampered by ST headwinds. We view the rise of tensions between ISP and the Egyptian Syndicate of Pharmacists as a major overhang on the stock, representing a downside risk to our numbers. According to ISP’s management, as of now, 2-3% of ISP’s retail clients (c66% of 2019 sales) have endorsed the Syndicate’s boycott call. EIPICO’s portfolio has proven to be the most vulnerable to external shocks, with Jan-Oct 2020 volumes falling by 27% y-o-y, leading to a similar drop in value terms, in the absence of ASP upward revision and new launches. We downgrade EIPICO to Neutral, with increasing leverage raising concerns.