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ALMIRALL: MESSAGES FROM OUR MEETING WITH THE COMPANY (ANÁLISIS BANCO SABADELL)

Highlights from our meeting with the company’s CFO:
 For the time being ALM maintains its guidance’20 (EBITDA of € 260-280 M vs. € 270 M BS(e)) until it has more visibility on the impact from COVID-19. It has also confirmed that for now it has not seen an interruption in raw material procurement or in production capacity, which remains unchanged. The confinement measures in place could have a larger effect on products still in a ramp-up phase (Seysara, Ilumetri and Skilarence) due to a reduced sales push (salesforce is unable to visit doctors and hospitals).
 The company does not rule out savings in SG&A (Sales, General and Administrative expenses), where ALM had given a guidance’20 of mid/high-single-digit growth (vs. +7% BS(e)), due especially to lower sales costs (salespersons not traveling, conferences being cancelled, etc.), which could partly offset the falling demand. Separately, ALM does not expect any big changes on the R&D expenses level, which we place at around € 90 M (11.5% sales).
 As for the pipeline (23% of the T.P.), the company does not expect any delays in regulatory approval of Tirbanibulin (phase III for actinic keratosis; 10% of T.P.), expected to be rolled out in 1Q’21. As for Lebrikizumab (phase III for atopic dermatitis; 14% of T.P.), Eli Lilly has had to postpone the inclusion of phase III patients, although it does not expect the rollout to be delayed (expected in 2023).
 The company confirmed it has around € 440 M of available liquidity (~ € 160 M in balance sheet and €150 M in undrawn credit lines) and no debt maturities in 2020. On another note, although it is assuming a central-case scenario of stable debt in 2020 (1.5x NFD/EBITDA’19), this will depend on the M&A activity and on the final impact of Covid-19.
 As regards M&A, the situation brought by Covid-19 could generate opportunities due to the liquidity tensions being faced by many companies. The group confirmed that it continues to seek accretive agreements to reinforce its main business (dermatology; ~45% sales) and that it could raise its debt level to 2.5x-3.0x NFD/EBITDA (vs. 1.5x at the end of 2019).
Despite the lack of visibility into the COVID-19 pandemic, we welcome the messages conveyed by the company and maintain our positive stance on ALM in view of the resilience we expect to see in its recurring business (74%) and the good prospects for its pipeline (23% of our T.P.).
In our base-case scenario of a two-month recession (strong impact of 2-4 months on ALM) followed by recovery in the 2H’20, we expect to cut our EBITDA’20 estimate by around -15%, which would have a small impact on our T.P. (of around -5% to € 17.10/sh.; +52% upside). Having fallen by -16% since the health crisis began (+14% vs. IBEX; previously it had fallen -11% from the risk of the EBITDA’20 guidance coming in below expectations and had underperformed the IBEX by -17% on the cumulative level), the stock is trading at 7.7x EV/EBITDA’21, which means an attractive -30% discount to the sector average.