Today’s half-year results report from generic medicine producer Hikma Pharmaceuticals (LSE: HIK) put a rocket up the stock and it rose more than 8% in early trading this morning.
I reckon the move was driven by the narrative that explained the directors are “raising full-year expectations” for the Generics division and expect the Injectables division to be “towards the higher end” of their previous full-year guidance range.
Most of the business is outperforming
That’s great news. There’s nothing the stock market likes more than a company that’s exceeding its previous estimates. Indeed, the information is new, so it makes sense for the share price to rise as the market factors it into the valuation.
And it’s quite a big deal for the firm because the Injectables business accounted for just over 41% of overall sales in the period while the generics business delivered around 35% of sales. So that’s about 76% of operations that are on course to outperform.
Meanwhile, today’s adjusted figures are good. Revenue rose 7% compared to the equivalent period last year and earnings per share shot up 18%. The directors signalled their satisfaction with the outcome and optimism about the outlook by pushing up the interim dividend by almost 17%.
The period has been a busy one during which the firm appointed a new chief scientific officer thus “strengthening” its Research & Development (R&D) capabilities. It also launched 37 new products and signed seven product licensing agreements covering the US, the Middle East and North Africa regions.
Big in America
They’re important geographies. In the first six months of the year, around 66% of overall turnover came from the US market and 29% came from the Middle East and North Africa. Just 5% came from Europe and the rest of the world.
Chief executive Siggi Olafsson explained in the report the company has been bearing down on costs, increasing investment in its R&D programmes, and adding new products via partnerships. He said the increase in full-year guidance demonstrates the directors’ “confidence for the remainder of the year.”
Big pharmaceutical firms such as GlaxoSmithKline and AstraZeneca have experienced challenges in recent year because of their branded medicines timing out of patent protection. The situation has been well reported, and the problem has been that generic medicines flood the market at cheaper prices. So I’m pleased to have the option of investing in a competitor firm that benefits from the production and sale of generic medicines. I think Hikma Pharmaceuticals could sit well in my portfolio alongside GlaxoSmithKline and AstraZeneca.
The recent share price close to 1,932p throws up a forward-looking earnings multiple just under 16 for 2020 and the anticipated dividend yield is a little under 1.8%. That’s not a cheap valuation, but I reckon the outlook has just improved and I find the stock to be attractive.
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Kevin Godbold has no position in any share mentioned. The Motley Fool UK owns shares of and has recommended GlaxoSmithKline. The Motley Fool UK has recommended AstraZeneca and Hikma Pharmaceuticals. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.