Uninterrupted growth amid global headwinds
Cut TP on higher WC needs; Upside warrants an upgrade to Overweight. We cut our TP by 14%, as we factor in higher WC needs, following the change in ISP’s revenue segments’ contribution in 2019. Nevertheless, we acknowledge the drug distributor’s solid growth profile (2020-22e revenue CAGR of 18%) and retail market positioning (21.3% as of 4Q19, to reach 25% by 2024e). ISP trades on a 2020e P/E of 14x, at a 32% discount to peers (adjusted for growth), while offering a 2020-22e EPS CAGR of 29%. We like ISP’s business defensive nature, backed by solid, sustainable revenue growth and stable margins, with no FX exposure.
Change in revenue streams warrants higher WC investments. 2019 saw ISP’s credit-intensive segments’ (tender and private hospitals) revenues soaring by 49% y-o-y, outpacing the retail and wholesale segments, which recorded 18% and 32% revenue growth, respectively. We see this trend sustaining in the medium-term. This resulted in 2.5ppt higher contribution from the tender and private hospital segments (representing 15% of ISP’s 2019 sales), stretching the distributor’s cash collection period by six days, resulting in 89 days of receivables. Given we believe ISP’s credit-intensive businesses will remain the distributor’s main growth engine, we gradually extend our receivables DoH by one day p.a., reaching 93 days by 2024e.
Business least impacted by COVID-19 outbreak, look for 2020e 28% EPS growth. Despite the COVID-19 outbreak, and a shaky global outlook, we believe ISP is well-poised to deliver 28% 2020e EPS growth. This comes as we expect ISP to outgrow the Egyptian pharma market by 5ppt, growing 20% in 2020e, and expanding its market share by 70bps to 22%, along with slightly flattish margins, and flattish interest expenses. Nevertheless, we note that 1Q20e sales growth might range 9-13%, dragged by lower discounts from drug producers, on the back of uncertainties related to the COVID-19 outbreak, a trend we see ending by end-1H20e, with suppliers securing their raw materials, thus boosting 2H20e sales.
Ibnsina Pharma Co is an Egypt-based pharmaceutical distribution company. The Company distributes a portfolio of pharmaceutical products from over 350 Egyptian and multinational companies to more than 35,000 customers including pharmacies, hospitals, retail outlets, and wholesalers. Ibnsina Pharma Co's nationwide distribution network with more than 50 operational sites, including distribution hubs and central warehouses, is supported by a fleet of approximately 600 vehicles. The Company's main services for suppliers include management of warehousing and logistics for pharmaceutical products as well as the development and execution of tailored marketing solutions targeting a nationwide database of customers.
CI Capital is a diversified financial services group and Egypt’s leading provider of leasing, microfinance, and investment banking products and services.
Through its headquarters in Cairo and presence in New York and Dubai, CI Capital offers a wide range of financial solutions to a diversified client base that include global and regional institutions and family offices, large corporates, SMEs, and high net worth and individual investors.
CI Capital leverages its full-fledged investment banking platform to provide market leading capital raising and M&A advisory, asset management, securities brokerage, custody and research. Through its subsidiary Corplease, CI Capital offers comprehensive leasing solutions, including finance and operating leases, and sale and leaseback, serving a wide range of corporate clients and SMEs. In addition, CI Capital offers microfinance lending through Egypt’s first licensed MFI, Reefy.
The Group has over 1,700 employees, led by a team of professionals who are among the most experienced in the industry, with complementary backgrounds and skill sets and a deep understanding of local market dynamics.
CI Capital has been recognized as the “Best Investment Bank in Egypt” by EMEA Finance for four years running from 2013-2016, and by Global Finance in 2014 and 2015.
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