Peel Hunt downgrades Hikma, says upgrades are in the price
By Michele Maatouk
Date: Monday 12 Nov 2018
(Sharecast News) - Hikma Pharmaceuticals was under pressure on Monday as Peel Hunt cut its stance on the stock to 'hold' from 'add' saying that strong upgrades were already in the price.
Hikma upgraded its 2018 guidance in its third-quarter update last week, leading Peel to up its earnings per share estimates for 2018-22 by 5-21%, putting the brokerage 8-23% above consensus. However, it said that given Hikma's strong year-to-date performance - the shares are up 68% in absolute terms and 76% versus the FTSE - the upgrades are largely in the price.
Peel Hunt, which lifted its price target on Hikma to 2,000p from 1,950p, noted that the stock is now trading at a 20%+ premium to the average peer EV/EBITDA. Historically it has traded on a 4% discount, the brokerage said.
"Likewise, Hikma's 12-month forward price-to-earnings and EV/EBITDA have rebounded strongly from early 2018 lows to above historical average levels," it said.
The brokerage said its price target increases only slightly as lower peer multiples, driven by broader market weakness, have offset its higher estimates.
"Our discounted cash flow implies a 2,300p valuation (more than 20% upside), and so Hikma's shares could still appreciate when wider market sentiment recovers," said Peel. However, it reckons that the 2019 guidance next March will have to drive another round of strong consensus upgrades to support significant outperformance of the stock from here.
At 1315 GMT, the shares were down 3.6% to 1,788.50p.
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