Fidson Healthcare Plc - Tough Operating Conditions Delivers HOLD signal

Proshare

Sunday, June 05, 2016 6:52 PM / CardinalStone Research

Fidson Healthcare Plc (FIDSON) released its Q1'16 results on the Nigerian Stock Exchange recently. Following revisions to our forecasts, we reduce our TP to N2.15 (previous: N3.89) and revise our recommendation to a HOLD (Previous: BUY). Find below an update of our outlook on the company and an analysis of the company's FY'15 and Q1'16 performance.

Headwinds curtail sector growth in 2016 but long term potential remains strong 

Similar to most sectors of the economy, the pharmaceutical industry is battling macroeconomic challenges which have curtailed growth. Foreign exchange controls hindered Fidson's ability to procure raw materials while the fuel shortage witnessed in the last quarter also hampered distribution.

Added to all of this, weakening purchasing power (as a result of rising inflation) resulted in slower growth as consumers likely demanded less of preventive medications and supplements such as nutritionals (Astymin, Astyfer etc). Notwithstanding the current challenges, Nigeria's low healthcare penetration and of the need to effectively manage infectious diseases, especially HIV/AIDS, Malaria, Tuberculosis, as well as neglected childhood diseases present enormous opportunity for domestic pharmaceutical companies to thrive. 

Tight FX supply, a drag on FY'16 earnings

Whilst Q1 is usually a slow quarter, we do not anticipate a material pick-up in overall economic activity level given FX supply constraints and higher inflation. Therefore, we expect FIDSON's performance for the rest of year to likely mirror what we observed in Q1'16 and thus revise our previous estimates and project a 3% YoY growth in overall revenues to N8.5 billion (Previous: N11.1 billion). 

Valuation

Consequent to the revision to our forecasts, our 12 month target price for FIDSON is revised downwards to N2.15 (Previous: N3.89) which presents a 7% upside potential from current share price levels and thus we revise our recommendation to a HOLD (Previous: BUY).

Related news:
1.
FIDSON Declares N28.48 mln PAT in Q1 2016 Result SP N2.15k
2.
FIDSON Proposes N0.05k Final Dividend in 2015 Audited Result SP N2.47k
3.
Fidson Healthcare PLC a rose on concrete
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FIDSON The Bulls are engaging in counter-attack now
5.
Fidson grows PAT by 1.53 as Revenue down by 17.97 in Q3 15

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