Richter Gedeon - One-Off Sales Related Milestone Helped To Save The Quarter

 

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

Target price (12-month): HUF 6,100 (unch.) 

Current share price: HUF 5,815

 

Key points for Q1/19 results:

 

 - Total revenues were HUF 121.6 bn (+7% YoY ) broadly in line w/ cons. estimate of HUF 120.5 bn but including unexpeced one-off sales related milestone of HUF 7.2 bn (USD 25.6 mn) in respect of Vraylar. W/o one-off milestone, net revenue was HUF 114.5 bn (flat on the year and -6% QoQ).

 

- Regular royalty income on Vraylar sales in the U.S. amounted to USD 27.3 mn (+80% YoY but flat QoQ). 

 

- Reported EBIT amounted HUF 17.2 bn (-3% YoY). Adjuting for one-off milestone, EBIT amounted to HUF 10 bn (-31% YoY). Clean EBIT margin came in at 8.3% (almost all-time low) vs. 12.8% in Q1/18, and thus 655 bps below the median of analysts’ expectations of 14.9%.

 

- Clean operating results were down predominantly due to lower sales in Russia and China, and the loss in  Esmya sales and to depreciation of the RUB against the HUF.

 

- Reported gross margin remained unchanged YoY at 57.5%, however after adjusting it for one-off milestone it showed a drop of  264 bps YoY to 54.9% mainly due to lower high margin Russian and Chinese sales, the fast-growing low-margin Romanian wholesale and retail revenue, price erosion and wage pressure in the CEE countries, the cost of the serilization project.

 

- OpEx after adjusted for one-off items rose 3% YoY on FX and wages pressure.

 

- Financials netted significant gains of HUF 5.2 bn in Q1/19 (vs. losses of HUF 2.4 bn in Q1/18) on favourable FX movements (the period end appreciation of the RUB and USD against the HUF) during the first quarter.

 

- Cash flows from operation dropped by 45% in HUF YoY to HUF 20 bn driven by a substantial increase in W/C needs (due in part to rising receivables on worsening liquidity at pharmacy chains in Russia). CapEx amounted to HUF 4 bn down by 15% YoY, thus free cash flow before dividend reached HUF 16 bn in Q1/19 compared to HUF 31 bn in the same period a ago. Net cash and equivalents and investments in securities altogether amounted to ca. HUF 691 a share, representing ca.12% of yesterday’s closing share price.

 

- We maintain our 12-m TP estimate at HUF 6,100 a share, implying a 5% upside potential from the current share price. We will review our rating on the share after the FDA’s announcement with respect to Vraylar for the indications of bipolar I disorder (bipolar depression).

 

 

 

Attila Vago
Senior Analyst

CONCORDE SECURITIES LTD.

Alkotás Point
50 Alkotás street, H-1123 Budapest.
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MEMBER OF THE CONCORDE GROUP