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Home Industries Company News

Neimeth Pharmaceuticals records high Topline, as earnings stay downbeat

Meristem by Meristem
May 14, 2019
in Company News, General News, Stock Market
Neimeth Pharmaceuticals records high Topline, as earnings stay downbeat
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Impressive Second Quarter Masks Poor Q1 Performance: Neimeth International Pharmaceuticals Plc closed its books for the quarter with an impressive half-year financial scorecard, showing the highest revenue recorded in the corresponding period in the last six years. The firm’s top-line grew by 11.25% to NGN976mn (vs. NGN877mn in H1:2018).

Both business segments — Pharmaceuticals and Animal Health — contributed immensely to the record-record performance. The pharmaceutical business grew by 10% to NGN958mn while the Animal Health business grew significantly by 129.98% to NGN18mn (vs. NGN8mn in H1:2018).

It is noteworthy that the second quarter accounted for 76.73% of total revenue
generated so far in the company’s financial year which ends in September. Hence, Year on
Year revenue growth pegged at 55.05%. The improved revenue performance in Q2:2018
came with a slight increase in trade receivables (+5.40%), at NGN622mn.

Although the firm appears to be recording growth in revenue, a significant proportion of it is held in receivables. Considering that this performance was an outlier in the history of first-halves, and going by past trends, we are projecting a moderate growth of 1.42% in revenue to NGN2.30bn for 2019FY.

Costs-to-Sales Rises above Trend: Cost to sales settled at 53.82%, higher than a six-year average of 50% in corresponding periods. All the elements of direct cost increased
during the period, with the most significant being the cost of raw materials consumed,
which grew by 48.92%.

Overall, the firm recorded a 31.39% growth in cost, from NGN400mn in H1:2018 to NGN525mn. Going by past trends, the firm records slightly higher cost to sales position in the second half of the year. Also, the industry-wide issue regarding the importation
of Active Pharmaceutical Ingredients (APIs) is expected to influence the upward movement
in cost. On a balance of factors, we have made a projection of 49.14% for cost-to-sales.

NEIMETH Narrowly Escapes a Loss Position: In H1:2019, the firm recorded significant
dip in earnings, which dropped by 81.57% to NGN5.44mn, from NGN29.54mn in H1:2018,
despite the cost savings on operating expenses. The woeful performance was a result of the contraction in gross profit by 5.61% and an increase in net exchange loss to NGN9.85mn, from NGN0.27mn in H1:2018. Therefore, the firm recorded a loss amounting of NGN139bn In Q1:2019, after four consecutive quarters of profits. The loss position was an aggregation of several shortcomings such as low demand, heightened cost-to-sales, increased distribution and marketing costs amongst others.

However, in the second quarter, the firm made a profit of NGN145mn which was sufficient enough to offset the loss made in the previous quarter, although inadequate to deliver growth in earnings. Following our projections in top-line and cost-to-sales, we have made a forecast of 10.30% for net margin, from an earnings level of NGN237mn in 2019FY.

Recommendation: We revised our 2019 expected EPS downwards to NGN0.12, on the back of lower earnings growth projections. However, we maintain our target P/E at 5.0x considering the low earnings reported during the period. Our target price has therefore been reviewed downwards from NGN1.00 to NGN0.62.


 

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seunlijofi@meristemng.com (+234 808 536 5766)

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