Fidson healthcare PLC, a leading pharmaceutical manufacturing firm in Nigeria released its first quarter (Q1) result on April 28th, 2017.
The firm’s revenue grew by 181% from N1.2billion ($3.3million) in Q1 2016 to N3.4billion ($9.4billion) in Q1 2017. Cost of sales expanded by 191% from N570.4million ($1.6million) toN1.7billion ($4.83million). This increase was due to foreign exchange volatility.
In Addition, administrative expenses increased by 80% from N364million ($996,279) in Q1 2016 to N655million ($1.8million) in Q1 2017 while the firms selling and distribution expenses surged by 651% from N87million ($238,512) to N653million ($1.8million) as a result of sales expenses which grew by 5101% from N8.2million to N423.9million year on year in the first quarter. Despite this, there was improvement in PBT which rose by 465% from 41.9million ($114,737) in Q1 2016 to N236.7million ($648,570) in Q1 2017. Similarly, bottom line increased by 465% from N28.5million ($78,022) in Q1 2016 to N161million ($441,027) in Q2017.
Another contributing factor was the recent implementation of the import adjustment tax (IAT), which has enhanced the competitive edge of local pharmaceutical producers compared with imported products. IAT is a 20% tariff on four categories of finished imported pharmaceutical products which local manufacturing firms have the capacity to produce. We believe that this policy will in addition to discouraging importation, stimulate local pharmaceutical production.
IAT is an adjustment on the ECOWAS common external tariff (CET) in which imported finished pharmaceutical products into Nigeria attracts a zero percent tariff, while importing pharmaceutical raw materials and packaging materials attracts a 5%-20% tariff.
The firm’s gross profit margin shrank marginally from 53% from 52% between Q1 2016 and Q1 2017.
FORECASTS
Our FY-2017 revenue forecast for Fidson Healthcare Plc. is N12 billion representing a 56.76% growth compared to the previous year. Our net income forecast for the firm isN720million representing a 127.3% growth yielding a forward EPS of 48K.
We expect the revenue for FY-2017 to be higher than the previous year as a result of increased capacity utilization from its expansion drive, coupled with the newly implemented IAT tariff which is aimed at discouraging finished pharmaceutical products while encouraging local production.
We project input cost to grow YoY due to increased production activities as a result of its expansion. Similarly this trend will be replicated in its Administrative and selling & distribution expenses. Also, we are a bit concerned about the firm’s liquidity challenge which could stifle its bottom-line earnings. We therefore foresee an increase in the firm’s borrowings consequently increasing finance cost as the firm will try to bridge its liquidity deficit.
INVESTMENT CONCLUSION/OUTLOOK FOR FIDSON HEALTHCARE PLC.
The shares of Fidson Healthcare Plc. Is under-valued with focus on our FY 2017 estimates. The stock is currently trading at a 13.46% discount to our fair value estimate of N2.08.
The performance of the firm so far this year has been good as the firm achieved a 4.70% net profit margin, which was slightly double the 2.33% it achieved in Q1 2016. This is quite impressive as the economic challenges, particularly the foreign exchange volatility which plagued the firm the previous year persisted through Q1 2017.
Despite this, we are optimistic about the firm’s prospects as its new manufacturing plant recently commenced operations. This is will be a huge boost to the firm as it will increase its local capacity. In addition, the firm has built strategic relationships with various foreign bodies and firms to further spur its growth and help it achieve global recognition.
We believe that with the perceived recovery of the economy gaining traction and the commitment of the government in driving policies to ease the business environment to encourage local production the firm eventually begin to reap the benefits of its investments which will not only cement its leadership status in the healthcare space, but also boost the healthcare sector and Nigeria’s economy.
2012 | 2013 | 2014 | 2015 | 2016 | 2017F | 2018F | |
N ‘000 | N ‘000 | N ‘000 | N ‘000 | N ‘000 | N ‘000 | N ‘000 | |
REVENUE | 7,168,940 | 9,235,060 | 9,719,190 | 8,210,760 | 7,655,029 | 12,000,000 | 12,500,000 |
PBT | 540,080 | 249,590 | 870,810 | 838,039 | 434,787 | 936,000 | 1,014,000 |
PAT | 206,890 | 154,980 | 631,820 | 744,378 | 316,762 | 720,000 | 780,000 |
EPS | 0.14 | 0.1 | 0.42 | 0.5 | 0.21 | 0.48 | 0.52 |
CASH DIVIDEND | 0.1 | 0.12 | 0.1 | 0.05 | 0.05 | 0.07 | 0.1 |
Click here to download full report
(GTI CapitalLtd)
