Analysts: The year is looking good for pharmaceuticals

Simona Adam (Translated by Cosmin Ghidoveanu)
Ziarul BURSA #English Section / 1 aprilie 2011

Investors shouldn"t overlook pharmaceutical stocks when building their portfolios, as the former have good prospects in the medium and long term, brokers say. These estimates come after the stock of "Zentiva" (SCD) have risen about 43% since the beginning of the year, and their peers in the sector, "Antibiotice" (ATB) and "Biofarm" (BIO), fell 3.04 %, and gained 0.09%, respectively.

Brokers say that the evolution of the stocks in question is due to the good financial results posted for the year 2010.

According to Nicu Grigoraş, broker at Intercapital Invest, the three companies listed on the BSE felt the effects of the crisis to a lesser extent than the other sectors of the market. He said that the companies were only affected in when it comes to their profitability and to prices of their stock.

As for their future, experts remain optimistic. According to Nicu Grigoraş, "the estimates for the next quarters are positive and as a result, issuers in the pharma sector should be considered when setting up a portfolio in this period". Also, Mihai Chişu, broker at "IFB Finwest" considers that the market still has major potential in the short and long term.

Some of the factors that could have an effect on the performance of pharma companies include the reduction of the number of subsidized drugs as well as the difficulty in gaining access to new drugs.

However, Simion Tihon, broker at Prime Transaction, considers that the reduction in the number of subsidized drugs as a result of the budget cuts won"t have a definitive effect on the evolution of the shares of pharmaceutical companies.

Drug makers could make more money by selling new or innovative drugs. Unfortunately, access to new types of drugs is very low compared to the European average.

"Zentiva" pays out a dividend of 0.3 lei/share

Zentiva ended last year with a turnover of 254.6 million lei, up 45% over 2009, and a net profit of 53.1 million lei.

This year, the management of the company has proposed to shareholders the payout of a dividend of 0.3 lei/share. The proposal was followed by increased short term interest from investors in the company"s shares.

"Following this press release, there was an increase in the number of buyers, whereas sellers were increasingly hard to come by", said Simion Tihon, broker at Prime Transaction.

"Even at the current price, dividends offer a 20% return to investors", said Dragoş Dărăbuţ, financial analyst at "Tradeville". He added that at the moment, "the price to book value of the SCD stock is 1.84 compared to the preliminary results, which is higher than the European P/BV of 1.74", which means that it is slightly overvalued.

Dragoş Dărăbuţ: "Antibiotice remains a stable company"

Drug maker "Antibiotice" Iaşi (ATB) last year had a gross profit of 18 million lei, up 15% over the previous year, but below the initially budgeted level of 20 million lei.

For 2011, the company is aiming for 22.4 million lei in earnings, up 24%, according to the draft budget for 2011, which also includes the preliminary results for 2010.

Dragoş Dărăbuţ considers that "Antibiotice remains a stable company, which over the years proved that it can achieve good operating results". He said: "In 2010 the turnover of ATB increased almost 11%, with the operating revenues in line with the initial estimates of the company". He added that shares of ATB have a P/BV multiple of 1.05, whereas the shares of Biofarm (BIO) have a P/BV of 1.54, both being below the European average of 1.74.

"Biofarm" pays out the first dividends after the listing

Biofarm Bucharest had a net profit of 14.56 million lei last year, and paid out 41.3% of its net profit as dividends.

The company"s administrators are proposing to shareholders the payment of a dividend of 0.0055 lei/share, or a total of 6.02 million lei this year. It is the first time since the company"s listing in 2005, that the company pays out dividends to its shareholders.

According to the list of subsidized and free drugs for the year 2011, provided by the Healthcare Department of Bucharest (CASMB), there are 1588 drugs which are 90% subsidized, and 882 which are 50% subsidized. In the similar period of 2010, the numbers were 1699 and 767, respectively. The number of fully subsidized drugs fell from approximately 4200 last year to around 4000 in 2011.

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