Sopharma Group: New pharmacy powerhouse? Hard to say (stays SELL)

We maintain our SELL recommendation on Sopharma, with an updated price target of BGN 3.48/share, or downside of c.3%. The pandemic laid bare the limitations of Sopharma’s drug production business, but also saw the closing of the acquisition, from its major shareholders, of a sizable retail pharmacy portfolio for c.BGN 17m (to be paid over five years). Despite the limited data available, our instinct is to take a constructive view on the retail expansion and adjust our forecasts accordingly. We also flag the company’s assertions that internal restructuring is bearing its first fruits in terms of a cohesive commercial policies, which could, in theory, yield additional upside. Both, however, put the more important issue of transparency in the spotlight. We speculate that both developments could inject new life into the investment story but, unless Sopharma improves the disclosure of the operational KPIs for businesses under its umbrella, we are at a loss as how to credibly reflect it in our forecasts. Until this changes, we would allocate resources to stories where achieving visibility is less challenging.