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Value investors who are oblivious of the equity market rally and have their monies parked in the bond market could be part of the bullish party by investing in drug makers’ stocks because of their attractive valuation and future earnings growth prospect.
Of course, local and foreign investors have been thronging the equity market following the announcement by President Bola Tinubu of market-friendly policies such as the removal of fuel subsidies and the unification of the foreign exchange rate.
The NGXASI has gained 26.05 percent so far this year, and the prognosis is propitious given the current administrations transformation policies and expectations of bumper dividend by bellwethers.
It is important to note that pharmaceutical firms are value stocks, whose securities are trading at a lower price than what their performances may otherwise indicate.
For instance, Fidson Healthcare Plc trades at a price to earnings multiple of 6.65 times and May and Baker Nigeria Plc, 5.99.
Fidson Healthcare has a year to date (YTD) return of 83.22% and May and Baker, (27.67%), as both have outperformed the NGXASI index.
Despite the macroeconomic headwinds such as the red-hot inflation and foreign exchange crisis that continues to significantly undermine economic growth and stifle businesses, revenue of industry players has stayed resilient.
With the introduction of new products, increase in product price, investment in research, strategic alliances in the industry and investment in route to market, total revenue of Fidson and May and Baker Inched upwards by 8 percent to N25.73 billion as at March 2023
Both firms are lowly geared as there is not too much debt in their balance sheet, which means they are not exposed to financial risk as banks will be willing to lend to them.
The government is committed to investing in healthcare as millions of Nigerians are in dire need of healthcare service, a liquidity injection that is going to underpin the cash flows of pharmaceuticals.
Lagos State had announced plans to invest N200 million in promoting indigenous innovation and research, in the healthcare sector.
“Pharmaceuticals like FIDSON and NEIMETH have also invested in innovation, introducing new drugs/products for end users and also expanding their production capacity to increase reach. We note that for the sector to fully achieve its potential, significant investment by stakeholders in both the private and public sectors will have to be undertaken,” said analysts at Afrinvest Securities Limited.
“Thus, we posit that more private-public partnerships (like MAYBAKER’s joint venture with the FG to produce vaccines) would help to spur growth prospects,” said the analysts.