ii view: Hikma sees no material coronavirus impact

Less well known than rivals such as GSK, but with a growing dividend. Should investors swallow Hikma?

Full-year results to 31 December 2019

• Revenue up 7% to $2.21 billion
• Operating profit up 33% to $493 million
• Total 2019 dividend payment up 16% to 44 cents per share
• Total debt up 8% to $685 million

Guidance:

• Expect Injectables revenue to grow in the low to mid-single digits in 2020
• Coronavirus - not currently anticipating any material impact

Chief executive Siggi Olafsson said:

"2019 was another very good year for Hikma, driven by strong demand for our broad product portfolio, excellent commercial execution and increased operational efficiencies across the organisation.  During a challenging year for the industry, we delivered strong financial performance and made important progress on our strategic objectives.

“We remain highly focussed on executing our strategic priorities, which will drive further growth in 2020 and beyond, creating sustainable value for all our stakeholders."

ii round-up:

Generic or non-branded drug company Hikma Pharmaceuticals (LSE:HIK) reported both solid progress and reassuring outlook comments in these latest results.

Better management of inventory related expenses at its Generic drug division helped total group profits jump by 33%, while accompanying outlook guidance pointed to no material coronavirus impact. 

It does not have extensive operations or manufacturing in China, nor is it directly dependent on Chinese-manufactured goods or services.

Its shares gained by more than 4% in early afternoon UK trading, outpacing rivals AstraZeneca (LSE:AZN) and GlaxoSmithKline (LSE:GSK) and contrasting with further coronavirus falls for the broader FTSE 100 index. 

Hikma also announced news of an exclusive licence agreement with Glenmark Pharmaceuticals to commercialise its nasal spray and treatment of seasonal allergic rhinitis in the US. Almost 20 million adults in the US are affected by the condition every year.

Each of its three divisions of Injectables, Generics and Branded drugs contributed to a 7% improvement in full-year revenues. Sales at its Injectables business remain its biggest driver, accounting for around two-fifths of group total. 

Founded in Jordan, Hikma supplies over 650 medicines and products globally. Headquartered in the UK, it employs over 8,000 people across more than 50 countries, with the US accounting for two-thirds of overall sales. 

ii view:

Hikma is the third-largest US supplier of generic injectable medicines. One in every six generic injectable medicines used in US hospitals is a Hikma product. In 2016, the company received a Drug Shortage Assistance Award from the US Food and Drug Administration (FDA) for its role in preventing or alleviating drug shortages.

For investors, defensive qualities and a forward price/earnings ratio below the 10-year average offer appeal. Larger rivals such as AstraZeneca and GlaxoSmithKline offer higher dividend yields, but dividend earnings cover of over three times at Hikma potentially provides room for future growth.

Positives: 

• Diversity in both product and geographical location
• 108 new products launched during 2019

Negatives:

• Currency translation can hinder performance
• Key markets Saudi Arabia and Egypt can suffer political instability

The average rating of stock market analysts:

Strong hold