Richter Gedeon - Record Quarterly Results – Dirt-cheap Valuation

Record quarterly results – dirt-cheap valuation  

Richter posted record clean EBIT of HUF 64.8bn (+103% YoY) on net sales HUF 217.8bn (+38% YoY) for Q3/22. Clean EBIT was 22% ahead of the consensus estimate of HUF 53.2bn while net revenue also beat consensus forecast of HUF 205bn. Clean EBIT margin stood at a record level of 29.7% compared to consensus estimate of 26% and 20.3% YoY. There was a minor milestone income in the amount of HUF 0.08bn in Q3/22 received from Abbvie for the the acceptance by the FDA for review of the NDA request related to aMDD indication of cariprazine. Clean net income came in at HUF 82.4bn (+123% YoY), significantly exceeding the consensus estimate of HUF 62.5bn, driven mainly by FX.

• Key positives:

1. Sales exceeded consensus estimate primarily due to higher than expected CIS sales, particularly revenue generated in Russia, CEE and Chinese sales. Evra, emergency contraceptives (Plan-B / Plan B One-Step) and other newly introduced WHC brands (like Drovelis, Ryego and Cyclogest) did a lot to drive up sales.
2. WHC sales increased by 57% YoY in HUF, mainly thanks to Evra sales and accounted for 36% of total phara sales vs. 33% YoY.
3. Both consolidated and pharma gross margins were stronger than expected due to FX and yet relatively low costs of sales (reflecting procurements of early this year).
4. OpEx adjusted for milestone income increased by 28% YoY, but at a slower pace than sales, due to higher energy, shipping and wage costs, with S&M and R&D expenses representing only 16.5% and 8.6% of consolidated sales.
5. Clean pharma EBIT margin went up from 25.3% to 35.1% driven by Vraylar, other novel WHC drugs and FX. Clean pharma EBIT margin w/o Vraylar also improved massively both Q/Q and Yo (15.9% vs. 10.8% and 4.5%)
6. OCF rose by 27% YoY as a result of higher operating results.
7. Consolidated net income was HUF 82.4bn (+123% YoY), significantly better than the consensus mainly driven by FX.
   • Key negatives:..
8. Financial profit was a bit weaker than expected. Richter said that FX impact on sales were positive to the extent of as much as HUF 43bn in Q3/22 compared to HUF 29bn in Q2/22, realized financial items were positively impacted by FX movements due to the weakness in the HUF against key currencies during the third quarter.