Investors cautious but calm despite continuing eurozone crisisLeading shares are edging higher despite the latest turn in the Greek crisis - with no end in sight despite time running out - and news that the Chinese market suffered its worst weekly fall since 2008.With the European Central Bank discussing whether to provided further emergency funds to Greek banks, there is little sign of a panic by consumers to withdraw cash. And with further meetings today and probably over the weekend in the run up to the special leaders summit on Monday, there is still hope a deal can be hammered out to keep Greece in the eurozone and provide much needed bailout money.The shares have declined more than 25%, exceeding consensus earnings per share cuts . On a near-normalised basis (excluding recent product shortage windfalls), Hikma’s base business can deliver almost £1 a share in 2017 estimated earnings, which will be boosted further by incremental shortage opportunities, ramp-up of Bedford products and, importantly, M&A (more than $1bn firepower). Despite our estimates being modestly below consensus, the shares at 22 times 2016 and 19 times 2017 estimates provide what we see as an attractive entry point in light of 5-year organic earnings compound annual growth rate of 14%.We have previously articulated our concerns around a large transformational acquisition given evidence of excesses in current M&A climate. While those concerns persist, recent management comments (likely following investor pushback) increase our comfort. Chances of a dilutive transaction have diminished given recent sell-off in shares. Continue reading...
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