Goldman Sachs has on Friday initiated the coverage of Hungary's leading drugs maker Richter Gedeon with a ‘Buy' recommendation and set its target price to HUF 38,600, which implies 46% potential upside compared to Thursday's closing price of the stock.
Goldman Sachs' analysts believe that “despite near-term operating pressure, the company has an attractive long-term outlook, which the market is not giving it full credit for."
They reminded that Richter operates in long-term growth markets with low generic drugs penetration, low healthcare spend as percentage of GDP and low competition.
“These points, coupled with further potential sector consolidation should contribute to healthy long-term growth for the company. Given these prospects, the stock looks undervalued vs. generic peers on 2009E EV/EBITDA (33% discount) and EV/GCI/CROCI (32%), which we believe is unjustified," the analyst added.
Their ‘Buy' recommendation is so strong that they have even placed Richter on their Pan-Europe Buy List.
GS claims that Richter's long-term potential will outweigh short-term pressures, but the analysts could still identify a few near-term catalysts. They believe Richter's Q1 2009 results (due in May) and management guidance for 2009 full-year results (which should be provided in May as well) could be a positive for the stock.
Another catalyst for the stock in the medium to long term, they said, could be any news on consolidation of the generic healthcare sector.
“Possible distributor bankruptcy, the impact of currency fluctuations on prices and margins, more aggressive entry of Indian and Chinese competitors into CEE and CIS, value destructive deals, litigations on side effects are key downside risks to our view and price target," GS said.
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