By: Jehanzaib Zafar
BMA Capital Management Ltd.
We initiate coverage on The Searle Company Limited (SEARL) with a TP of PKR390/sh offering an upside of 53% on the last closing. Our bullishness on the scrip stems from undemanding market multiples in confluence with earnings CAGR of 37% (consolidated) over the period FY14A-FY17F backed by i) standalone earnings CAGR of 34% over the same period as a trickle down consequence of topline ii) substantial earnings growth in subsidiary IBLHL on the back of 5%-10% price increase announced and continued topline expansion going forward on account of new products and iii) robust growth likely in earnings of wholly owned subsidiary Searle Pharmaceuticals Limited. Key upside triggers to our investment case include recently formed subsidiaries Searle Laboratories and Searle Biosciences where we await clarity on the said ventures before incorporating them in our models. For full year FY15, earnings are expected to clock in at PKR1.5bn (EPS: PKR17.7) resulting in a P/E of 14.5x, a significant discount to average sector multiple of 20x – BUY!
SEARL – A brief introduction: The Searle Company Limited is the country’s third largest listed pharmaceutical company by way of sales with its product portfolio broadly distributed into two main categories, i) Pharmaceutical segment ‐ 88% contribution to company’s topline and ii) Healthcare segment ‐ 12% contribution to the top‐line. Within the Pharmaceutical segment, the contribution of life saving drugs is estimated to be around 20%‐30% while the contribution of generic drugs to the total sales of the segment is ~70%‐80%.