Alkaloid AD Skopje: downgraded on valuation (downgraded to SELL)

After updating our forecasts and cost of equity assumptions, we have downgraded our recommendation on Alkaloid to SELL (from Hold), with an updated price target (PT) of MKD 15,553/share. With limited exposure to Ukraine and Russia (13% of its 2021 revenues), Alkaloid should continue to deliver solid earnings, albeit tempered, in our view, by input costs pressure. We understand from the market that there has been no marked impact on the prices of API and chemical precursors – to date – but there has for packaging materials and energy, to name two. So, while we make some modest downgrades to our numbers, this is primarily a valuation call – with Alkaloid’s premium to its sector peers now reaching over 40%. We have noted before that Alkaloid’s valuation is comparably rich; with its predicable earnings profile and generous dividend policy, the stock is a favourite of local investors. At these levels, however, the premium vs. its peers is too much to ignore, our positive view on the business and its solid c.10% ROIC notwithstanding.