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Egypt pharma | Prospective turnaround budding; Pick smaller producers

Growth to resume following one-year break. The economic downturn and mobility restrictions during 1H20 took their toll on drug makers’ volumes sold, which dropped 5% y-o-y, yet supported by COVID-19 related drugs. Now that the economy opened up, we see gradual recovery shaping up, boosted by postponed doctor visits, elective surgeries, and new product launches. We expect the retail pharma market to deliver 5% and 8% y-o-y gradual recovery in 3Q20e and 4Q20e, respectively, bringing 2020e sales growth to 4%, followed by a 2020-23e sales CAGR of 17%.

Favour fast-growing, actively managed, drug producers. We view drug makers with a strong growth profile and well-selected, dynamic portfolio, including COVID-19 related drugs, as best-poised to capitalise on either the rebound in the pharma industry or a potential second COVID-19 wave. We like Rameda’s superior growth, seen outgrowing the market with c6ppt p.a., thanks to its quite dynamic portfolio and Alex Pharma, on an increasing demand for its flagship product (Panadol) and capacity addition.

Rameda, Alex Pharma our top picks. Rameda’s long-term story began to unfold, underpinned by its: i) recent molecule acquisition, further boosting retail ASP, growing at c36% y-o-y in 1H20, and ii) swift response to the pandemic, being one of the first producers to attain the COVID-19 drugs licence. Rameda trades on a 2021e P/E of 14.2x, while offering a 2020-22e EPS CAGR of 48%. Alex Pharma offers the perfect mix of a: i) solid FY20-22e EPS CAGR of 19%, ii) healthy BS, with a net cash position of EGP167mn, and iii) FY20 dividend yield of 8.2%. The stock trades on a FY21e P/E of 3.7x, largely penalised by the stock’s tight liquidity, in our view.

Ibnsina, EIPICO lag, on increasing WC needs. Ibnsina proved resilient to external shocks. Improvement in FCF is expected in 2020e vs. two years of cash outflows. We like the name trading on a 2021e P/E of 12.0x, 25% below the historical average, flagging cash cycle management as our main concern. EIPICO trades on a 2021e P/E of 6.1x, c33% below its historical average, despite offering a 2020-22e EPS CAGR of c23% and a 2020e dividend yield of 6.5%, on the: i) lack of trust in 2021e rebound, ii) challenges to 2021e rebound, and iii) uncertainties related to its EGP1bn biosimilar projects funding and profitability, in our view.