Strong 3Q of Sopharma indicates better than expected FY 2016



Pharmaceuticals leader Sopharma booked a strong 3Q16 and is heading for a better than expected FY2016 performance.

A new turning point for Sopharma

After two years of disappointing performance due to heavy exposure to Russia and Ukraine, Sopharma’s latest results signal an inflection point into better times. 3Q16 top line and operating profitability improved considerably. The results came close to pre-crisis levels with a 16% y/y rise in sales to BGN 40m and 90% y/y rise in EBIT to BGN 5.6m. As management put it, Russia remains unpredictable, but the Company managed to soothe the drastic sales decrease in 1H16 with better exports in 2H16. Overall 11M16 top line preliminary data reveal only 5% drop in sales which is considerably better than we expected.

Sopharma cost optimization payed off

Profitability improved considerably as well despite top line remaining in the negative growth zone. Key reason is cost optimization efforts paying off. Unconsolidated EBIT is up 18% y/y to BGN 19.9m for the 9M16 due to slashed external service expenses by 26.7% y/y, 14% y/y drop in material costs and 5.4% y/y decrease in labor costs. Overall EBIT and EBITDA margins for the 9M16 add 3 p.p. y/y to 16.7% and 25.5%, respectively. The latter returned to normalized precrisis levels.

Stock performance yet to catch up market rally

Nevertheless, Sopharma’s stock performance is yet to catch up the markets 33% y/y rally. The Company’s market cap has expanded 16% y/y even below fundamental improvements, thus offering room for further capital appreciation. Valuation wise the stock trades below average market multiples especially with the considerable 32% y/y EPS expansion.

About Sopharma

Sopharma is one of the biggest Bulgarian groups of companies. It is a leading producer, exporter and distributor of pharmaceutical products with a strong presence in Eastern and South-Eastern Europe, offering a wide range of prescription medicines and OTC products. The Group is vertically integrated and includes both production and distribution. It operates 15 pharmaceutical factories in Bulgaria, all in compliance with GMP (Good Manufacturing Practices), one in Ukraine, and two in Serbia. It is also the owner of the leading healthcare product distributer in Bulgaria – Sopharma Trading (SO5 BU) and the majority shareholder in a leading distributor and owner of a large pharmacy chain in the Baltics and Belarus – Briz, Latvia.

Read more in ELANA Trading equity research report on Q3 2016