Fundamental Review of Two FTSE-100 Listed Stocks - Unilever PLC & Hikma Pharmaceuticals PLC

Fundamental Review of Two FTSE-100 Listed Stocks - Unilever PLC & Hikma Pharmaceuticals PLC

 

The increasing number of novel coronavirus cases restricted the upward move of FTSE-100. The index was trading at 6,141.34, down by around 2.83 per cent (as on 24th June 2020 before the market close at 3:20 PM GMT+1).

The other critical factors to watch out, which can impact the market:

  • The IMF forecasts the Global GDP to decline by 4.9 per cent, lowest level since the Great Depression. The GDP of the UK is likely to decline by 10.2 per cent in 2020.
  • The US is reviewing to impose a tariff on exports worth USD 3.1 billion from the UK, Germany and France.
  • As per the industry experts, close to 20,000 jobs of the people working at the British Airports are at risk.
  • The Gold prices were trading near 8-year high price as the investors’ move to safer assets.
  • Brent crude oil was trading at USD 40.45 per barrel, down by 5.11 per cent (as on 24th June 2020 before the market close at 3:20 PM GMT+1) over the rising concerns of sluggish demand.

Given the above market conditions, we will review two FTSE-100 listed stocks - Unilever PLC (LON: ULVR) and Hikma Pharmaceuticals PLC (LON: HIK). As on 24th June 2020, (before the market close at 1:35 PM GMT+1), both Unilever and Hikma Pharmaceutical shares were down by 0.61 per cent and 1.75 per cent, respectively. Unilever operates in the consumer staples sector, whereas Hikma Pharmaceutical operates in the health care sector. Let's walk through their financial and operational performance.

Unilever PLC (LON: ULVR) – Plans to operate under single legal entity Unilever PLC

Unilever PLC is UK based Group listed on London stock exchange. The Group manufactures and sells products used by consumers worldwide in their everyday life. The Group operates under three business divisions, namely Beauty & Personal Care, Foods & Refreshment and Home Care. It offers more than 400 brands in the portfolio, which are used by people in 190 countries.

Q1 FY2020 Trading Update (for the period ending 31st March 2020) as reported on 23rd April 2020

The Group reported revenue of EUR 12.4 billion as the underlying sales growth remained flat in Q1 FY20. The sales volume grew by 0.2 per cent; however, the underlying price declined by 0.2 per cent when compared to the same period last year. In the current unprecedented situation, consumer preference is changing as the demand for hygiene products have surged. On 1st April 2020, the Indian subsidiary of Unilever completed the merger with GlaxoSmithKline Consumer Healthcare Limited. The Group agreed to buy a minority stake in the Malaysian subsidiary. The Group announced a quarterly dividend of EUR 0.4104 per share.

Divisional Business Performance in Q1 FY20

The Beauty & Personal Care segment generated revenue of EUR 5.3 billion. The demand for hygiene brands such as Lifebuoy grew, which was launched in 43 new markets. Vaseline performed well with the launch of anti-bacterial cream in the UK and Pro derma clinical range in China. The demand for skincare products declined due to travel restrictions.

The underlying sales of Food & Refreshment segment declined to EUR 4.4 billion. In-home consumption severely impacted the demand for foodservice. The restriction on travel affected the demand for ice-creams, whose key market is tourist destinations. However, the need for in-house food consumption products increased as consumers went for shelf storage.

The underlying sales for the Home Care segment grew to EUR 2.7 billion. The surface cleaner and bleaching products, which are acting as the first line of defence amid the pandemic witnessed increased demand.

Trading Update Q1FY20

(Source: Company Website)

Operation by Geography

The underlying sales in North America increased by 4.8 per cent year on year as the basket size of the consumers increased. The underlying sales in Europe grew by 1.4 per cent due to increased sales of hygiene products and household stocking. The underlying sales in Latin America grew by 4.9 per cent year on year, mainly driven by the demand for deodorant and fabric solutions in Brazil. The underlying sales in Asia declined by 3.7 per cent year on year primarily due to the lock-down in China and India; however, markets in Indonesia and Vietnam performed well.

Merger to single legal operating structure

On 11th June 2020, Unilever announced plans to operate under a single parent Company from the previous dual-headed legal structure. Unilever NV and Unilever PLC operated as two separate entity listed in the Netherlands and the UK, respectively. Under the new proposed structure, Unilever NV will be merged under Unilever PLC, and Unilever NV shareholders will receive one share of Unilever PLC for one share of Unilever NV.

Share Price Performance

1-Year Chart as at June-24-2020, before the market close (Source: Refinitiv, Thomson Reuters)

The shares of Unilever PLC were trading at GBX 4,481.00 per share (as on 24th June 2020 before the market close at 3:35 PM GMT+1). The stock had the 52-weeks High and Low of GBX 5,333.00 per share and GBX 3,583.50 per share, respectively. The Group had a market capitalization of GBP 118.38 billion.

Business Outlook

The Group has withdrawn the guidance for growth and margin. The demand pattern is changing, and it expects increased demand for hygiene products and in-home food consumption products. The Group is opening new capacity wherever needed. The demand for food services and ice-creams is expected to remain subdued as consumers will be conscious of out-door eating. The proposed merger of the dual entity to a single entity is expected to complete by Q4 2020, which is subject to shareholders approval.

 

Hikma Pharmaceuticals PLC (LON: HIK) – Facing increased demand for pharma products

Hikma Pharmaceuticals PLC is the UK incorporated Group which develops, manufactures, and markets pharmaceutical products. It has 31 manufacturing plants in 11 countries, seven R&D centres, and more than 690 patents. The Group operates under three businesses, namely Injectables, Generics and Branded. The primary market of the Group includes the US, Europe, and MENA (the Middle East and North Africa)

Trading Update for FY20 as released on 30th April 2020

The Group is well placed in the current pandemic with product offerings majorly used in the healthcare sector. The Group witnessed an increase in demand for the Injectables in the US, Europe, and MENA region as it provides products, such as anaesthetics, sedatives and anti-infectives, which are facing huge demand. The Generics division did well from the contribution of new products and additional demand given the COVID-19 situation. On 22nd May 2020, Hikma Pharmaceuticals USA Inc., a subsidiary of Hikma PLC received FDA approval for the Icosapent Ethyl Capsules, 1 gm. The approved capsule is similar to Vascepa®1.

FY2019 annual result (for the period ending 31st December 2019) as reported on 19th March 2020

The Group revenue was up by 6 per cent year on year at USD 2,207 million in FY19. The core operating profit was USD 508 million, up by 10 per cent year on year due to the reduced costs.

The Injectables division, which develops and manufactures generic injectable products, reported core revenue of USD 890 million and constituted 41 per cent of the total revenue. The core sales of Injectables was up by 7 per cent year on year, which was underpinned by the strong demand for existing and new products across the US, MENA and Europe. In total there were 69 new products launched under the Injectable business.

Generics division which develops oral and non-injectable products reported revenue of USD 719 million. The increased demand for nasal spray and the launch of new products offset the price pressure in the US retail market following which the divisional sales grew by 4 per cent year on year.

The Branded division which develops branded generics sold in the MENA region reported revenue of USD 583 million. The sales grew by 8 per cent year on year supported by robust demand in Saudi Arabia and Egypt.

FY19 Financial Performance

(Source: Company Website)

Bulk sale of ordinary shares by Boehringer Ingelheim Invest GmbH

Boehringer Ingelheim Invest GmbH sold close to 27.2 million ordinary shares of Hikma at GBP 23.0 per share. The transaction raised approximately GBP 625 million in gross proceeds. Hikma reached an agreement with Boehringer Ingelheim Invest GmbH, to buy back close to 12.8 million ordinary shares, as a part of the deal Hikma will receive a commitment fee of 2 per cent from Boehringer Ingelheim of the total value of the buyback deal.

Share Price Performance

1-Year Chart as at June-24-2020, before the market close (Source: Refinitiv, Thomson Reuters)

The shares of Hikma Pharmaceuticals PLC were trading at GBX 2,308.00 per share (as on 24th June 2020 before the market close at 3:35 PM GMT+1). The stock had the 52-weeks High and Low of GBX 2,670.00 per share and GBX 1,596.00 per share, respectively. The Group had a market capitalization of GBP 5.37 billion.

Business Outlook

In FY20 the Group expects the revenue in the Injectables and Branded business to grow by mid-single-digit. The Injectables operating margin is expected to be in the range of 35-37 per cent. The Group expects the Generics business to generate revenue of about USD 700-750 million, which includes income from the launch of Advair Diskus® generic during the second half of the year. The operating profit is expected to be in the range of 16-18 per cent. The demand for healthcare products will likely increase amid the current situation.

 

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