Alkaloid AD Skopje: near-term prospects are looking up (upgraded to HOLD)

Following Alkaloid’s 2Q22 results, and our review of the 6-18 month outlook, we have revised up our 2022-24E earnings and upgraded the stock to HOLD (from Sell), with a new price target (PT) of MKD 17,740/share. Since our recent downgrade, the company’s 2Q22 results exceeded our expectations materially in both the Russia/CIS and EU-27 markets and some of the margin pressure we expected is failing to materialise. Management is observing a rebound in the demand for antibiotics – its largest product line – including cephalosporins, a niche drug, where the company is one of the few global competitors. Finally, growth investments a few years in the works appear ready to start paying off. We must still highlight the stock’s material premiums vs. its sector peers, but these are narrowing as we upgrade our numbers – instead of over 40%, it is now c.30% – and the sector derating, in our view, has slowed, if not stopped. Also, despite the higher rate environment, the stock still generates ROICs some 140bps above its cost of capital.