RMDA EY | Flagging an outperformer on a PEG of 0.2x
Prominent among the crowd. Rameda trades on a deeply discounted 2023e PEG of 0.19x and is among our top picks in Egypt. We raise our operational forecasts to reflect product price hikes and rollover our DCF. This is offset by a higher cost of equity assumption, with our 12M TP unchanged at EGP3.90/share. The implied one-year FWD P/E is 10.8x, 39% below EM peers on Egypt market specifics.
EGP weakness should not affect Rameda’s earnings outlook. Six of Rameda’s top ten products (c40% of revenue) are since mid-June, selling for c25% more. This is a key achievement that, despite y-t-d EGP weakness of ~23%, allows Rameda to stack up to its 2022 guidance of 15-20% top line growth, a c30% EBITDA margin, and 40-50% EPS growth. It should also provide assurance to the market that the pace of product repricing is now relatively quick at 2-3 months, in line with the typical stock of API.
Acquisitions have a payback of 3.8 years. Rameda’s inorganic growth deserves greater attention by the market, in our view. Associated revenues since 2012 now form a significant 41% of top line. Rameda pays 3x as EV/EBITDA vs. its own 2021 multiple of 10x, with target molecules having higher growth, and margins. The company’s net debt can rise to 3x EBITDA, implying EGP950mn in firepower. We believe this form of inorganic growth has, and continues to, make the most sense, also to improve the plant’s capacity utilisation which is 41%. Further molecule acquisitions pose a source of upside.
Scope for growth to continue outpacing the industry. Ongoing macro challenges help hasten the pharma industry’s import substitution story as consumers trade-down. Imports represent approximately half of total pharma demand. Another medium-term dynamic is Rameda’s GCC push, which should begin to pay off in 2023. Its export revenue, c7% of sales, is very concentrated. The two markets of Iraq and Yemen are together 94%, so there is ample room to better penetrate the region. Saudi and the UAE are particularly reliant on imports, by 75% and 93% of total consumption, respectively.
10th of Ramadan for Pharmaceutical and Diagnostic Reagents Co SAE is an Egypt-based pharmaceutical company that manufactures both human and veterinary pharmaceuticals. It operates three fully independent factories at its plant, including 20 production lines capable of producing a wide range of general medicinal forms, namely eye drops, solid dosage forms, syrups, blow-fill-seal, and lyophilized vials, among others. The Company owns an extensive product portfolio covering anti-infective, anti-diabetic, respiratory, ophthalmology, gastro-intestinal tract, cardio-vascular, central nervous system, vitamins and analgesics. Additionally, the Company provides contract manufacturing services to a number of local and multinational pharmaceutical companies.
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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