Hikma Pharmaceuticals (LSE: HIK), Hochschild Mining (LSE: HOC) and Oxford Instruments (LSE: OXIG) have all seen their shares move after releasing significant news today. Is the time now right to buy all — or any — of these three companies?
Hikma Pharmaceuticals
Fast-growing pharma firm Hikma was promoted to the FTSE 100 earlier this year. The company is rapidly increasing its prospects of becoming a permanent fixture in the elite blue-chip index.
Six weeks ago, Hikma announced a $2.65bn acquisition which transforms its position in the US generics market. Today, the company has announced another deal. This one consolidates the group’s position in its other major geographical segment: the Middle East and North Africa (MENA).
Hikma has agreed to acquire almost the entire share capital of Egypt-based oncology specialists EIMC United Pharmaceuticals. The deal gives Hikma a manufacturing facility in Egypt, and a portfolio and pipeline with the potential to add around 50 products by 2020.
Hikma’s shares had risen strongly on news of the US acquisition, and are up more modestly on today’s announcement, trading at 2,395p, as I write. The benefits of both deals won’t start to be felt until next year, when earnings per share of 100p looks do-able, putting the company on a rich price-to-earnings (P/E) ratio of 24. However, with the major US acquisition expected to become “very strongly accretive” to earnings from 2017, and today’s deal further leveraging Hikma’s strong position in the fast-growing MENA region, the stock continues to be a decent buy at current levels, in my view.
Hochschild Mining
Shares of silver miner Hochschild reached an all-time high of over 650p in 2011, but have fallen heavily since with the slump in the price of silver and other metals. The shares have recovered somewhat, from a low of not much more than 60p in the spring, and are up a further 7% on news today, trading at 73p as I write.
Hochschild announced it had achieved commercial production at its flagship Inmaculada mine in Peru, after what has been an impressively quick and efficient ramp-up. This will improve the company’s cash flow and margins (all-important in the current environment). Management says the world-class Immaculada mine “will be the company´s key mining operation for many years to come”.
There was also good news from another of Hochschild’s properties in the shape of a “significant discovery” of a new high-grade, wide vein. At a time when cash is constrained for miners, the new vein has the significant advantage of being close to the company’s existing infrastructure, and requires only a low level of capital to access.
Hochschild is a long-established miner in South America — its roots go back to 1911 — and its directors take a long-term view in running the business. Investors taking a similar view could see significant gains in the future from buying shares at their current depressed level.
Oxford Instruments
Oxford Instruments designs high-tech tools and systems for research and industry. Until recently, the company was a darling of investors — from the start of 2009 to the start of 2014 its shares soared from 150p to nearly 1,800p. However, there has been huge fall since, showing what can happen when a highly-rated growth company doesn’t live up to earnings-growth expectations.
A statement ahead of the company’s AGM today saw the shares take another downward lurch — a 15% dive to 680p, as I write — with the Board announcing: “we have reduced our expectations for the full year”. The company cited “the sudden tightening of trade sanctions for sales to Russia, a slower-than-expected recovery in Japanese markets, and weaker trading in our Industrial Analysis business” as the primary factors.
The group has been in the process of restructuring and lowering its cost base, and, while the Board believes the company is “well positioned to deliver its growth strategy over the medium term”, today’s news shows a continuing challenging environment. The once high P/E is now down into the low teens, but, with sentiment weak, the shares could fall further yet, and I would be looking for clear evidence of the company getting back on track before buying in.
