Guilty or not, we remain buyers on fundamentals
Raise TP 15% on market share gain. Our valuation of EGP13.2/share accounts for: i) higher market share of c2% p.a. (evident by ISP’s strong performance in 2017, 19.24% market share), ergo better economies of scale, ii) new distribution contract signed on Mar-18 with Novo Nordisk (60% insulin market share), adding c3% to our 2018-22e revenue and improving blended gross margins (10% GPM vs. 8.6% for ISP in 2017), and iii) 0.3ppt higher discounts to clients, conservatively accounting for any possible change in ISP’s sales policy. We see no impact on ISP’s future cash cycle from the ongoing lawsuit, given that small clients with invoices < EGP1k (reason of lawsuit) are <1% of sales in the period related to the violation, as per the mgmt.
Valuation undemanding, even assuming ISP found guilty. Management intends to book provisions over 2018-21 using the maximum bracket (12% to sales in period of violation, Jul-13 to Dec-14= EGP122mn). According to the law, the penalty should be set at a minimum of 2% and a maximum of 12% of sales that occurred during the period related to the violation. However, in the case of not being able to quantify the fine amount, the penalty would be set at a minimum of EGP500k or a maximum of EGP500mn. The maximum fine would knock EGP0.50/share off our TP to EGP12.80/share, still offering c34% upside. ISP offers a 2018-22e EPS CAGR of 52% (incl. provisions of EGP75mn), translating into a PEG of 0.4x vs. peers’ 2.1x (80% discount).
Capex roll-out on track. The company spent EGP150mn in 2017, increasing its warehousing network and fleet by 6 branches and 55 vehicles, respectively. This should help cater for Novo Nordisk’s new contract at no additional capex. ISP plans to spend EGP700mn, over 2018-22, to add 20 DCs and 240 vehicles, supported by proceeds from the capital increase of EGP290mn (received regulatory approval on 26 March). The expansion plan should drive market share gains, reaching 24% in 2022 vs. guidance of 26%.
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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