Alkaloid AD Skopje: Making good on its potential (stays HOLD)

We have rolled over our DCF model and raised our 12M price target (PT) for Alkaloid by 36%, to MKD 18,423; however, following the c.44% share price rally since our initiation, last autumn, we retain our HOLD recommendation. Alkaloid posted solid 9M21 results and, after meeting with management, we understand that the outlook for 4Q21E and 2022E is similarly positive. We remain convinced that the company’s ongoing strategy (increasing the production capacity for key drugs, expanding its portfolio with new indications and, selectively, investing into new markets) is a solid one, and we appreciate both the solid FCF generation (despite investing for the future) and the investor-friendly remuneration policy. For 2022E, it is also looking at M&A opportunities, willing to spend EUR 20-25m, which can be debt financed comfortably (the 1H21 gearing stood at just 0.6x). As local investors hunt for yield, however, Alkaloid’s valuations remain rich, in our view, so we would keep an eye out for better entry opportunities.