Almirall: recent revaluation (+46%) reduces potential 13.1%


I. Isardo (Link Securities) | Almirall (ALM) is a vertically integrated international pharmaceutical group which focuses on the purchase, production, storage, commercialisation and mediation in the sale of specialities and pharmaceutical products and of all types of raw materials used in the production of specialities and pharmaceutical products.

The pharmaceutical sector is characterised by being very competitive and technologically intensive and its main laboratories are large scale. Therefore, to be able to compete, medium and small scale laboratories like ALM develop their business in niches in the market, where their experience allows them to compensate for their smaller size.

In this way, Almirall has focused its business in the dermatological medicines sector, which currently makes up 49% of its business, mainly in the European and US markets. In addition, in 2017 the group experienced a profound restructuring of its business in the US market, which included changes in the management team and led to a sharp fall in its results.

As a consequence, the management team has focused its efforts on the more profitable products and compounds and those with longer term patents, which has allowed ALM to recover in 2018 what it lost the year before. ALM bases its growth on both the organic development of its compounds and products and the establishment of alliances or agreements with other companies in the sector.

It is in this context that the agreements with Athenex (December 2017), Dermira (February 2019) and, mainly, Allergan (August 2018) should be seen. The group acquired the dermatological portfolio from Allergan in the US, which has allowed it to consolidate its presence in the country, the main dermatological market in the world, and the development of the antibiotic Sevsara, whose commercialisation has recently been approved by the Federal Drug Administration (FDA), and which we believe will be one of the levers of future growth.

In this way, ALM met all its targets in 2018 and increased total income (+7.3% yoy; +8% at constant rates), thanks to net sales (+10.7% yoy; +11.4% at constant rates) its operational cash flow (EBITDA – +47.3% yoy; +47.3% at constant rates) after implementing cost-cutting measures, and tripled its net profits compared with 2017, up to 88.2 Mn€.

We estimate that ALM will continue to improve its results in the study period 2019-2021, thanks to organic growth driven by the development of three compounds: Illumetri®, Skilarence®, which together make up the psoriasis franchise in Europe, and SevsaraTM in the US, which united with the reception of Astra Zeneca´s milestones, will lead the company to a CAGR of 9.4% in net sales, a CAGR of 24.0% in EBITDA and a CAGR of 37.2% in net profits.

Moreover, we have valued the group with two methods: i) discount of adjusted cash flows to taxes and ii) by multiples relative to those at which the company is trading with reference to other companies in its sector, showing an average valuation of 2.89095 Bn€, equivalent to 16.63 €/share. At current prices, this means that ALM shares are trading at a potential revaluation of 13.1%.

We think that Almirall has been able to correct its previous errors in the US dermatological market and we believe that the current management team´s policy, of focusing on high profit products and compounds with long term patents ad in markets with greater potential, is correct. Together with a sanitised financial situation, with a controllable level of debt, and with compounds which offer an elevated visibility in future results, this makes us opt for ALM as an attractive investment to take into account among companies trading with a medium capitalisation. However, the strong revaluation it shares have experienced in recent months (+46% in the last 12 months) has reduced its revaluation potential to 13.1% at current prices in terms of our valuation. For all that, we recommend Accumulate the share in portfolio, taking advantage of any cut in its share price to build up a position.

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