Hikma has crept, largely unnoticed, into the FTSE 100, which it joins in a little more than a week with a market capitalisation of about £4.4 billion. Those who know the company have a vague idea that it sells generic drugs into the Middle East. Probably the cleverest thing Hikma has done over the past couple of years is not to sell its injectables business.
This was on the slab with a rumoured asking price of $2 billion, but the company decided the offers that came forward were not good enough. The possible sale drew attention to the attractions of the business and it has been the best performer since.
Hikma’s strong cash generation, more than $400 million in 2014, has seen it benefit from other generics products coming on to the market, while the rise of injectables has allowed it to focus on the American market and away from more volatile ones in the Middle East.
Injectables is now about half the business and sales in the United States were up by 51 per cent last year. Its branded business, which sells into the Middle East and North Africa, was less robust, because of inevitable disruption in Iraq and Libya and the need to restructure the business in Algeria.
In generics, the third arm, there was a hiccup in the US, where the launch of its Mitigare gout treatment was delayed by legal action by Takeda, which makes the main competition. Such slip-ups are inevitable if you are competing in the generics area; Hikma has a range of 582 compounds across the group. Future progress will depend to some extent on how well it can compete, in a crowded marketplace, in bidding for new ones.
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The shares fell 73p to £22.43 after an outlook statement that indicated some slowdown, to perhaps 6 per cent, in revenue growth this year against last. Branded products should manage a decent increase, given the improvements made there. Injectables will be flat, unable to match the strong growth last year, while generics will continue to decline until new compounds come through.
A special dividend raises the total by five cents to 32 cents, but this is not an income stock, the yield below 1 per cent. On 23 times earnings, further upside looks limited, though.
Expected revenue growth 6%
MY ADVICE Avoid for now
WHY Business model is a strong one and benefiting from self-help, but the earnings multiple looks high for such a business
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Investors have every right to feel a bit miffed at Boohoo.com’s intention to seek their permission to buy back up to 10 per cent of the shares, only a year after the company was floated. Boohoo raised £50 million at the float; at today’s share price, that would mean buying in about half that, and at about half the price the shares were issued at.
The assumption must be that Boohoo raised rather more than was needed at the time of the float. The shares remained at or near that 50p share price for most of last year; they plunged abruptly after early January’s shock profit warning, which said that a warm autumn had caused heavy discounting on the high street, which left profits a quarter below expectations.
At least yesterday’s trading update showed that the position had not deteriorated further, so those reset targets had been met for the year to the end of February, with an encouraging 56 per cent rise in sales outside Europe after prices were cut.
This, of course, is before the heavy selling season begins in the spring and investors will have no better idea how the company is faring until the finals are published early in May. Total sales came in 27 per cent higher at £139.9 million in the past financial year and analysts, without any clearer guidance, are shooting for a similar rise next year.
The only positive to be put on the proposed buyback is that it will be earnings-enhancing, if you assume that the shares have hit their lowest ebb. Up 1¾p at 27p, they sell on a pretty meaningless 27 times earnings. Best avoided, unless you fancy a straight gamble.
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Sales £139.9m Cash pile £54m
MY ADVICE Avoid
WHY There could be more surprises ahead this spring
Shares in Witan Investment Trust, like others in the sector, drifted above their net asset value for a while in the autumn. Such quoted vehicles traditionally trade at a discount, though.
The price rise probably had a bit to do with Witan’s attempts to sharpen up its act and a bit because trusts are the sort of reliable instruments retail investors can be expected to move towards when they are required to invest their own pensions.
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Witan’s price, up 5½p at 761½p, is back below that NAV figure, which is in the region of 790p, but the brief premium did, under the rules, allow for the issue of new shares to satisfy pent-up investment demand.
The trust is among the most reliable performers, having paid out an increased dividend for four decades, although the yield is only 2 per cent. Witan, which uses a number of third-party investment managers, is 40 per cent exposed to the UK, with the rest equally in the rest of Europe, Asia Pacific and the United States.
It comfortably beat the market and its given benchmark last year and should continue to do so. This is about as safe an investment as it gets; if it suits your personal strategy, buy, lock it away and forget it.
Total 2014 NAV return 6.6%
MY ADVICE Buy long term
WHY Solid record of returns seems set to continue
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And finally . . .
That retail bond I wrote about the other day from Intermediate Capital Group closed early, having raised £160 million, more than expected. Now along comes International Personal Finance, the overseas home credit provider, with its second such bond. It is a measure of the success of the LSE’s Orb-listed bond market, after a slow start, admittedly, that two companies that are less than household names can have so little difficulty raising finance there. IPF’s bond will offer a coupon of 5.5 per cent to 5.75 per cent.
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