Hikma raises dividend as profit from generics soars

Hikma Pharmaceuticals (HIK) capped a strengthening full-year sales performance with a sizeable increase in the annual dividend. Constant currency operating profits were 34 per cent up on the prior year to $367mn (£290mn), driven by the group’s branded and generics businesses. The latter unit, which supplies generic and speciality products to the US retail market, recorded a noteworthy 86 per cent uplift in core operating profit.

Once adjustments are factored in, core Ebitda increased by 17 per cent to $811mn on a margin of 28.2 per cent, against 27.6 per cent last time around. Management expects profits to be slightly lower this year, but the full-year release was well-received by the market judging by the share price movement on results day.

Selling, general and administrative expenses came in at $767mn, up a quarter on the prior year, but including a provision of $129mn linked to the resolution of outstanding opioid-related cases in North America. Research and development costs as a proportion of revenues were broadly unchanged, while operating cash flow increased by 15 per cent to $608mn. Despite continued investments in new product lines, net debt represents a manageable 1.2 times core cash profits.

Group revenue is expected to grow in the range of 4-6 per cent in 2024, while core operating profit is forecast to be between $660-$700mn with an underlying margin in the mid-teens percentage range. A share price representing a 7 per cent discount to the consensus target price at 12.5 times forecast earnings doesn’t appear overly stretched compared with industry peers, particularly given that the post-Covid structural drivers linked to the generics market remain in place. But with no immediate share price catalysts in view, we revert to a neutral position. Hold.

Last IC view: Buy, 2,068p, 4 Aug 2023