Sopharma Group: finished product sales regain traction (upgraded to HOLD)

Following the 9M22 results, we have updated our forecasts and rolled over our DCF model, with an updated 12M price target (PT) of BGN 4.83/share – 7% upside – and an upgraded rating of HOLD. Versus our previous update, the drug exports to Russia and Ukraine are flattish yoy, prompting us to lift our FY22E consolidated finished good revenues by c.14% (with similar increases in 2023-25E). In our model, this, plus an improved cash conversion cycle and modest deleveraging, more than offsets c.30bps of margin compression in the wholesale/retail business and the higher expected energy and labour costs we pencil in for 4Q22E and 2023-24E. On our updated forecasts, the stock is trading at a small discount vs. its peers. Sopharma’s overall investment case has improved since 2020. That said, there are better options to capture regional growth, with better track records and transparency; and, in view of the low ADTV, we would see CEO Donev’s intention to tender for c.8% of the shares at BGN 4.5/share, as a “liquidity event” option for reducing positions.