Broker snap: Disappointing growth guidance at Hikma

17th Mar 2010 11:45

Broker Panmure Gordon was predicting yesterday that results from Hikma would be ahead of market expectations, so the in-line with consensus performance from the generic drugs producer came as a disappointment.The outlook statement also served to sap market enthusiasm for the stock in early trading on Wednesday. 'Outlook was weak in the branded business which represents 55% of revenues. The shortfall could result in modest downgrades albeit compensated somewhat by better performance in injectables and generics,' Panmure Gordon analyst Savvas Neophytou suggests.The broker had been forecasting 21.2% year on year growth in Hikma's branded business, so guidance from management of low single digit growth was a nasty surprise. 'To us, this is disappointing given the strong growth of the underlying MENA [Middle East and North Africa] market which we had assumed the company would be able to match,' Neophytou said.The broker still likes the company's exposure to the MENA pharmaceutical market, however; the market is 'currently worth some $28bn' and is set to experience 'robust growth' in Panmure's view.Management also hinted strongly at possible acquisitions, which Panmure Gordon thinks would present 'an important business and financing risk'.The broker has kept its 'hold' recommendation on the stock and stuck with its 530p price target.In contrast, Charles Stanley has downgraded the stock to 'hold' from 'accumulate'. The stock's premium rating reflects 'vague bid speculation as leading global pharmaceutical businesses eye the fast-growing [MENA] region' but reckons this is already built into the price, as is forecast strong revenue growth.