Investing

Why did I buy shares in Hikma Pharmaceuticals on Tuesday?

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Background

I have been following Hikma Pharmaceuticals (LSE:HIK) for a while. Yesterday, 23rd June, I bought its shares to bolster my portfolio against financial calamities. In this article, I will try to explain why I am bullish about Hikma stock.

Organisation Summary

According to Hikma’s website, it develops, manufactures and markets more than 700 brand and non-branded medicines. It was set up in Jordan 1978 and was listed on the London Stock Exchange in 2005.

Hikma Pharmaceuticals operations span 29 manufacturing plants in 11 countries: the United States, Portugal, Italy, Jordan, Saudi Arabia, Algeria, Germany, Egypt, Morocco, Tunisia, and Sudan. Looking at the spread of plants, it is clear that the US, Europe and MENA are its most important markets.

Market Performance

In the last 1 year, the share is up by 34%, and since mid-March, when the coronavirus crashed the market, it was up by 45% until yesterday.

HIKGB PharmaGB Market
36.2%18.0%-12.1%
Last 1-Year Return

Hikma outperformed the GB market and pharmaceuticals by a huge market!

The drugmaker’s profit revenue and gross profit have been growing every year.  It’s operating income has been increasing too.

The company also has robust financial health. Hikma’s short term assets exceed its short term and long term liabilities.

Hikma Financial Position Analysis

Addition to that, HIK’s debt is well covered by operating cash flow (76.5%), and its debt to equity ratio has reduced from 44.4% to 29% over the past 5 years.

My reason to buy

On Tuesday, Hikma shares dropped more than 8% after German pharmaceutical company Boehringer Ingelheim announced the sale of up to 28 million shares to institutional investors. The company currently holds 40 million ordinary shares in the UK group, representing around 16.4% of the issued ordinary share capital and voting rights.

However, Hikma promised to buy back £295 million shares from Boehringer. 

The shares being sold by Boehringer Ingelheim were issued by Hikma as part of the consideration for the acquisition of Roxane Laboratories in February 2016. The buyback demonstrates the board’s confidence in Hikma’s future prospects. Since its initial public offering in 2005, Hikma has delivered a total shareholder return of approximately 926%, exceeding the FTSE 100 total shareholder return of approximately 105%.

Hikma said in its own statement

Since the coronavirus pandemic started, the prices of most of the pharmaceutical company shares have risen astronomically. Hikma is one of those companies.

I loved the way the board of directors took quick action and decided to save the price from falling any further. 

Hikma is offering a dividend yield of 1.51% and pays just 22% of its earnings as dividend payments. In my opinion, it is offering a very safe dividend and unless the market crashes tremendously, the dividend is safe. 

Considering everything discussed above, I thought it was a good idea to take a small position in the company during the dip to improve my dividend portfolio.

Conclusion

At first, I intended to purchase a large amount of Hikma shares. But considering the market is already dropping due to the second wave of coronavirus infections in the US and some parts of Europe (Hikma’s main markets), the price might drop further. So, I will be ready to top-up my position and improve my Dollar-Cost Average in the coming weeks.

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I am an SEO professional, expert in both on-content and technical search engine optimisation. Besides eating, breathing and sleeping SEO, I am passionate about travelling, photography, collecting vintage mobile handsets and philately. I am also keen on financial freedom - saving, investing and passive income.

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