RMDA EY | Margin and inventory trends reversing, sharply
The story is back. Rameda trades on an attractive 2022e PEG of 0.2 (the lowest among Egypt healthcare peers and vs. a 1.7 MENA average), and we believe results releases will shine light on its compelling valuation. 4Q21 is due on 24 February, for which we expect net income of EGP61mn, +42% y-o-y and a new high since listing. The industry backdrop is conducive of stronger and more profitable growth (2022e EPS +48% y-o-y), allowing Rameda to resume its primary strategy of molecule acquisitions as the broader market begins to normalise. This source of upside is also important to demonstrate follow-through on IPO strategy.
A demonstrated ability to outperform. Rameda’s revenue grew 37% (Sep-21 TTM) vs. 7% for the market, to hold a 1.7% share of the private market, up from 1.2% in 9M20. We believe it can adapt to pandemic-related drug demand (c15% of 2021 sales) abating. With 8-10 high-priced launches (excl. acquisitions), plus higher CMO business thanks to unique lyophilised capacity, we look for 17% revenue growth in 2022, a sustainable rate, outpacing the industry’s typical 15% growth rate.
Cash flow getting a boost. 2021e will be the third consecutive year for EBITDA margins to weaken, on a series of pandemic-related headwinds, falling to 24%, down a significant 10pp from the 2018 high of 34%. Management guides it can achieve an EBITDA margin ›30% in 2022, with confidence in its product portfolio, lessened exposure to low-margin tenders, securing cheaper APIs and streamlining of SG&A. Margin recovery, along with offloading piled-up API stock, leads us to project cash from operations of EGP267mn for 2022, building on 9M21 performance and reversing the -EGP69mn in 2020.
Quality premium. Rameda’s 17% y-o-y underperformance relative to the EGX30 is a good entry point, and we do not believe there is a locally listed pharma-manufacturer with management akin to Rameda’s. It is a much savvier team able to: i) capture first-to-market opportunities, ii) grab early registration discounts, iii) migrate towards high-priced molecules, and iv) manage repricing in the event of EGP weakness. Additionally, EIPICO has risk of dilution from raising equity to fund a biosimilar project, and possibly a USD80mn API plant it has begun to study.
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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