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The Nigerian Pharmaceutical Industry is one which is badly in need of the right pill required to cure the burden of low profit margins and huge debts associated with their financials. Its a plague that has contaminated almost every quoted company in the industry save for GSK. The Pharmaceutical Giant in the first 9 months of the year increased revenue by 18% year on year to N18.7b. Operating profit also increased marginally by 14% year on year to N2.7b representing a margin of 15%. Pre tax profits also rose 14% to N2.7b in the first 9 months of this year. Return on Equity 20% and N1.97 (12% increase) in the first 9 months of the year.
These are results when compared to industry averages always appear as a stand out. But that’s like thinking protection is a cure to an STD. GSK’s margins have been down year to date with profit margin dropping 5%. At 10.1% profit margin it is unlikely the company will match the 15% it was able to achieve last year even though taxes have a way of skewing these figures. One way to know though is to look at operational profit margin. It has dropped more than 3% in the past year indicating that the plague may well be looking for its next victim.
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Thats not to say the company can’t shake this common threat away. It’s still very very low on debt and generates of N3.2b in operational cash flow (that is down as well) and closed the period with a cash pile up of N5b. That is also after spending N1b on investments. Investors like to reward stand outs, justifying why its trading at its highs of N43! A price that is 22x its current earnings per share (eps) and 24.8x its trailing eps. It was just 16X about a year ago. Is it pricey? Sure it is but would you rather settle for a sick pod?
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Glaxosmithkline (GSK) 9months unaudited accounts is posted on the website of the NSE
