Interactive Investor

Insider: bosses buy FTSE 250 shares heading in opposite directions

12th June 2023 09:15

by Graeme Evans from interactive investor

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One of these mid-cap companies is tipped to trade higher and could join the FTSE 100, while shareholders will hope bargain hunting at this iconic firm is a sign of better things to come.

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A FTSE 100 return is in sight for a director at Hikma Pharmaceuticals (LSE:HIK) after he declared a £27,000 investment backing the accessible medicines firm to continue its run of form.

The purchase involving former IMI (LSE:IMI) finance boss Douglas Hurt took place last week at 1,820p, which compares with the 1,200p seen last autumn when Hikma lost its top fight status.

Several City firms have backed Hikma shares to return above the 2,000p threshold after the company recently signalled an upturn in fortunes for its Generics arm, which supplies oral and other non-injectable specialty products to the US retail market.

Severe industry-wide competition, which resulted in low double-digit price erosion, meant the Ohio-based division’s revenues for 2022 slumped 18% to $672 million (£534.6 million) with its core operating margin down more than nine percentage points to 15.3%.

However, Hikma told its AGM in April that Generics revenues growth for this year will now be closer to 20% than the previous guidance of low double-digit growth. The forecast core operating margin is unchanged in the range of 16% to 18%.

Peel Hunt, which has a price target of 2,210p, said at the time: “Last year was one to forget for Generics, and whilst we have long suspected an upgrade might come through, we thought margins might be first. This is good news nonetheless.”

The FTSE 250 company’s shares jumped 4% on the AGM update as its two larger divisions also continue to perform well thanks to diversified products and manufacturing flexibility.

The Injectables operation, which supplies hospitals worldwide, grew revenues and operating profit by 8% to $1.14 billion (£910 million) and $428 million (£340.5 million) respectively. It typically launches between 10 to 15 products in the US every year.

The third strand of Hikma, which covers the supply of patented products across the Middle East and North Africa region, grew revenues by 3% to $691 million (£549.7 million).

Despite their strong performances in 2022, the strain in Generics caused group operating profit to fall 52% to $282 million (£224.3 million). A final dividend of 37 cents a share was paid last month, representing a 4% increase in the total dividend to 56 cents for 2022.

Executive chairman Said Darwazah said: “While our financial performance in 2022 lagged our longer-term track record, we are confident in our return to growth in 2023 supported by recent launches and good momentum in all our businesses.”

His optimism is backed up in the City after analysts at US bank Jefferies recently raised their target price to 2,125p and Citigroup opted for 2,210p compared with 1,920p previously.

At such a level, Hikma would regain its blue-chip status after a recent recovery that has already elevated its valuation to £4 billion as the fifth largest stock in the FTSE 250.

An ageing population and changing lifestyles underpin the investment case, with the global pharmaceutical market expected to reach $1.8 trillion (£1.4 billion) in 2026 based on an annual growth rate of between 3% and 6%.

The company, which was founded in Jordan 45 years ago and listed on the London market in 2005 at a price near to 300p, closed last week at 1,890.5p.

Non-executive director Hurt’s previous purchases of shares were in March of 2021 and 2022 at prices of 2,265p and 1,954p respectively. Hikma’s all-time high came in September 2020 at 2,795p.

Can bootmaker march higher?

Three directors of Dr. Martens Ordinary Shares (LSE:DOCS) have shown their support for the bootmaker’s strategy by spending a combined £43,700 on the FTSE 250-listed company’s shares.

Their purchases were made in the aftermath of annual results, when chief executive Kenny Wilson warned that investment costs in support of greater scale and long-term growth ambitions would reduce this year’s margin by up to two percentage points.

Annual profits also dropped 26% to £159.4 million as the Northamptonshire firm counted the £15 million cost of supply bottlenecks at its new Los Angeles distribution centre.

On a brighter note, Wilson maintained revenue guidance of "mid to high single-digit growth" and backed up his confidence in the company’s strategy and cash generation with an unchanged final dividend of 4.28p a share.

Shares slumped after the results on 1 June and closed last week near a record low at 126p.

The boardroom purchases connected to former Rightmove finance director Robyn Perriss, senior independent director Lynne Weedall and former Carphone Warehouse boss Andrew Harrison were made during last week at prices of around 135p.

The company was valued at £3.7 billion in its stock market flotation in January 2021, when shares were priced at 370p.

These articles are provided for information purposes only.  Occasionally, an opinion about whether to buy or sell a specific investment may be provided by third parties.  The content is not intended to be a personal recommendation to buy or sell any financial instrument or product, or to adopt any investment strategy as it is not provided based on an assessment of your investing knowledge and experience, your financial situation or your investment objectives. The value of your investments, and the income derived from them, may go down as well as up. You may not get back all the money that you invest. The investments referred to in this article may not be suitable for all investors, and if in doubt, an investor should seek advice from a qualified investment adviser.

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