Fidson Healthcare expansion plans embarked on with a view to increasing its share of the Nigerian market and strong financial position will soon magnify shareholders earnings, making the drug maker a stock to buy.
Investors who have butterflies in their stomach should hit the hay without worries because the firm has strong profitability and earnings, diversified earnings source, adequate operating cash flow.
Fidson Healthcare’s net income surged by 98.25 percent to N1.14 billion as at March 2022.
Interestingly, both profit and revenue have been growing since 2020 even amid the C0vid-19 crisis that tipped the country into a recession, inflationary pressures sucking up consumer wallets, decrepit infrastructure, and foreign exchange crisis.
Despite the aforementioned challenges, it is able to make profit from core operations while at the same time turning each Naira invested in sales into higher profit.
Net profit margin increased to 11.22 percent in March 2022 from 9.12 percent the previous year while operating profit margin moved to 20.10 percent in March 2022 from 18.46 percent as at March 2021.
The firm has some projects in the pipeline as it has maintained an organic growth strategy by investing in research, extensive distribution channels, product innovation, and that sets it apart from peer rivals.
Upon the completion of its World Health Organization (WHO) compliant factory, FIDSON was shortlisted for the WHO Good Manufacturing Practices (GMP) certification- an opportunity for the firm to compete with pharmaceutical firms across the world.
The drug maker also launched new products in its Ethical Units – Gibitor and Cresidox which helped to improve earnings as well as cash flow.
“We note the firm’s recent memorandum of understanding with Ekiti State government to supply affordable drugs as well as its production contract with International Finance Corporation to enhance increased production of Active Pharmaceutical Ingredients signed in 2021,” said analysts at Meristem.
“We expect these factors to help drive the firm’s sales volume and improve its revenue further in 2022FY,” said the analysts.
Fidson Healthcare has gained 92.53 percent so far this year, outperforming the NGXAI and making it the performer among pharmaceutical firms.
The company has issued N10 billion in commercial papers at a tenor of 270 days at an expected yield of 12 percent and discount of 11.01 percent as it seeks to bolster its working capital position and strengthen the balance-sheet.
“We find the premium offered on the instrument attractive, and thus recommend a BUY,” said analysts at Meristem Securities,
Bond yields have been rising since last year which means companies will be paying more interest on loans, but the good thing is that they have enough cash flows to honor their financial obligations.
The Nigeria 10 year government bond has a 11.148 percent yield, according to data from World Government Bonds.
That compares with a yield of 4.48 percent as at November 2020 and 5.10 percent in July. It is important to note that Fidson Healthcare has a better balance sheet because it can pay its debt.
The drug maker’s interest coverage ratio for U.S. companies stood at 5.57 in March 2022, substantially higher than the pre-pandemic level of 1.67, according to data from MoneyCentral.
The figure is a measure of a company’s ability to repay its debts, with a ratio of at least 2 generally considered the minimum acceptable amount for a company with solid revenues. Analysts typically prefer a coverage ratio of 3 or higher.