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Coronavirus to boost Pharma stocks on government stimulus

Analysts are betting that pharmaceutical stocks will appreciate on the back of stimulus announced by government in order to cushion the effect of coronavirus on the economy. This is expected to bolster future earnings.

Analysts say pharma stocks could offer investor’s shelter after the pandemic has waned and that sale of drugs/vaccines by companies will also underpin cash flow positions.

Given the continuous impact of the Coronavirus pandemic on global supply chains, the Central Bank of Nigeria, (CBN), is to increase its intervention in local manufacturing and import substitution by N1 trillion.

Apart from the N1 trillion intervention, the CBN in addition to the N50 billion soft loan to small businesses, increased its intervention by another N100 billion in loans to support health authorities, laboratories, researchers, and innovators work with global scientists to patent or produce vaccines and test kits in Nigeria to prepare for any major crises ahead.

“This month, we expect the risk-off sentiments to continue, given the current state of the global economy and investors’ flight to safety,” said analysts at United Capital Limited.

Read also: Nigeria, Angola could lose $65bn income as coronavirus threatens 20m jobs in Africa

“Also, we believe investors might continue to position in healthcare names, due to investments made by government and private sector in fighting COVID-19.”

The full year audited financial statement of the largest pharmaceutical companies quoted on the floor of the bourse showed they have financial strength and there are no threats to their going concerns.

Fidson Health Plc, May and Baker Pharmaceuticals, GlaxoSmithKline Consumer Nigeria, and Neimeth International Pharmaceuticals can service their debts and meet financial obligations as combined average coverage ratio stood at 2.71 times, a figure that is higher than the 1.50 times benchmark.

Despite the tough and unpredictable macroeconomic, the four largest pharmaceutical firms were able to turn each unit invested in sales into higher profit as net profit margins rose to 5.55 percent in December 2019 from 3.32 percent as at December 2018.

Also, their cumulative net income spiked by 74.44 percent to N1.76 billion in the period under review from N1.0 billion the previous year.

A breakdown of profit shows Fidson Healthcare posted net income of N312.02 million in the period under review from a loss position of N97.44 million the previous year.

The drug makers are able to use fixed assets in generating higher sales and profit as fixed asset tuner ratio increased to 3.86 times in the period under review from 0.40  times the previous year.

The shares of Pharma companies are attractive as entry points for patient investors.

May and Baker is trading at a price multiplie of 5.87, and it has a dividend yield of 9.35 percent.

Neimeth International’s trades at a price to earnings ratio of 2.13 times, while its share price closes at N0.48 on Friday.

There firms have embarked on aggressive expansion plans with a view to increasing their share of the market.

Fidon has an ultra-modern plant in Ogun State, a facility that is of international standard.

The manufacturing facility is equipped with six production lines-tablets, capsules, liquids, cream and ointments, dry powder and intravenous fluid to meet the needs of Nigerians and West African Markets.

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