Richter Gedeon - Clean EBIT Was Strong But Somewhat Lower Than Expected

 

 

Gedeon Richter - Instant Earnings Comment
Rating: Under revision (prev. Accumulate)

Target price (12-month): Under revision (prev. HUF 6,300) 

Current share price: HUF 6,640

 

Key points for Q4/19 results:

 

 

Richter Gedeon (Richter) posted reported EBIT of HUF -12.4 bn (+91% YoY) for Q4/19, implying a reported EBIT margin of -9% (-360 bps YoY). When adjusted for impairment losses once again on Esmya and other products and investments (in a total amount of HUF 31.9 bn), clean EBIT amounted to HUF 19.5 bn (+9.9% YoY), on our estimate, below the consensus estimates of HUF 20.7 bn and our estimate of HUF 23.0 bn, respectively. Clean EBIT margin was 14.1% vs. 14.5% in the same period last year and the consensus estimate of 15.5%. 

 

Clean operating results rose predominantly as a result of somewhat better than expected net sales, which were driven by increased revenue in Romania, WEU, the U.S. and LATAM, as well as positive FX impacts.

Reported net income came in at HUF -12.5 bn (+1.2% YoY), while cean net income was HUF 19.4 bn on our estimate compared to analysts’ estimates mean and our estimate of HUF 17.4 bn and HUF 17.4 bn, respectively. (NEG)

 

Richter earned HUF138.7 bn in total revenue in Q4/19 (+14.1% YoY), 4% ahead of analysts’ expectations and 2% better than our estimate as a result of higher than expected Romanian wholesale revenue, US, LATAM and EU 15 and Russian sales. The weaker HUF against the EUR, USD and RUB also did a lot to improve sales on YoY comparison in HUF terms.

 

Consolidated gross margin came in at 56.2% in Q4/19 compared to 55.6% in Q4/18 and the consensus estimate of 56.4%. Higher royalty income received from Allergan on the sales of Vraylar in the U.S., the weaker HUF and improved OC sales certainly were all supportive to the gross margin, while gradual price erosion in CEE markets and Russia, tightening regulatory measures and higher low-margin Romanian wholesale revenue put a drag on it.

Clean OpEx rose by 19.4% in HUF YoY on our estimate, with R&D expenses rising 26.4% and S&M expenses increasing by 13.1% YoY (partially due to the stronger RUB against the HUF). OpEx was predominantly driven by higher costs of wages and IT.

Financials netted losses of HUF 4.4 bn in Q4/19 compared to a gain of HUF 3.7 bn in Q4/18, due to FX movements.

Cash flows from operation dropped by 3% in HUF YoY in 2019 to HUF 98.2 bn mainly dampened by higher W/C needs (receivables in particular). CapEx remained flat at HUF 39.4 bn. Net cash and equivalents and investments in securities altogether amounted to ca. HUF 797 a share at the end of 2019, representing ca.12% of Richter’s market cap.

We are going to revise our 12-m TP estimate and our earnings estimates for 2020 and 2021, respectively. We will also revise our rating on Richter.

 

 

 

Attila Vago
Senior Analyst

CONCORDE SECURITIES LTD.

Alkotás Point
50 Alkotás street, H-1123 Budapest.
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