EUR 125.97 For Business Accounts Only

Egypt pharma | Selectivity is key; Favour Rameda

2021 starting with mixed signals; Full recovery expected in 2H21; Rameda our top pick. Egypt’s January and February retail pharma market data reflected 14% and 4.5% y-o-y growth, respectively, or 9% blended, signalling the onset of retail sales recovery. We look for c12% growth in 2021 vs. 5% in 2020, stemming from a 4.5% pickup in volumes (vs. 2.0% drop in 2020), along with a 7.5% rise in ASP, underpinned by the rebound in non-COVID-19-related drugs. Recovery will be gradual in 2021, with 2H21 reflecting a full earnings rebound, in our view. Positive earnings trends should act as good catalysts for pharma players.

Rameda: Growth name, trading at undemanding valuation. Given the smoother-than-expected market rebound, we select Rameda, on: i) aggressive product launch strategy, with eight-ten molecule additions p.a., alongside organic growth, leading to 2021 revenue growth of 18%, ii) superior margins (GPM reaching 48.6% in 2021e, up from 46.5% in 2020), and iii) attractive valuation. Rameda’s growth story remains intact, with a 1pp cut in margins, resulting in an 8% decrease in our TP to EGP4.50/share. Rameda trades on a 2021e P/E of 11.7x, at a c16% discount to one-year historical trading multiple, while offering a 2021 EPS growth of 50%.

EIPICO biosimilar project main overhang; AXPH margins revised downward. EIPICO’s story still showing upside potential. The drug maker’s latest reported IQVIA numbers reflected a rebound in ASP, as expected, positively mirroring 2021 revenue progression. We view EIPICO’s EGP1.2bn biosimilar project funding (with 50% equity potentially funded via a capital increase) as a major overhang on the stock, until materialisation. We narrowed our TP for AXPH 17% to reflect delayed recovery in non-COVID-19-related drugs volumes, softening Panadol sales, and a tilt towards relatively lower-margin product mix, leading to profitability pressures.

ISP: 2020 earnings miss, on ailing market positioning. The Syndicate of Pharmacists boycott call, in 4Q20, translated into an EGP75mn earnings loss over five weeks, on our figures. To mitigate the hit on revenues, ISP offered higher than usual discounts (resulting in a 6.5% GPM in 4Q20), as we believe, ending the year with a blended 7.8% GPM, which management sees sustaining in 2021. Consequently, we cut our GPM by 50bps across our forecast horizon, resulting in a 16% cut to our TP to EGP6.40/share. We look for 55% surge in ISP’s 2021 earnings, following management’s cost cutting initiatives, leading to a 2021e P/E of 11.4x.