How much is PHARMDEKO worth?

Company Overview

In a bid to promote its pharmaceutical products, Parke-Davis & Company (US) started a non-trading branch in Nigeria in 1962. In 1969, it was incorporated as Parke-Davis & Co (Nig.) Limited.  And a change of name to Pharma Deko Limited was adopted in 1980. In addition to pharmaceutical products, it produces consumer products like SANS Cream Soda, Dextra Black Currant drink and Bien Flavoured water. 

The directors control about 80% of the shareholding of the company. Mr. F.R.A. Williams chairs the board while Mr. J.A. Abibu is the managing director.

Investment Thesis

Revenue growth added 5.2% to grow by 12.6% over the past three years on a 3-year CAGR basis. However, this is less than 29% achieved two years ago. Pharmaceutical division lost 4.2% whereas the consumer products segment dropped by 6%. In addition, revenue growth of its different segment has been erratic.   Administrative expenses as a ratio of turnover jumped to 74.3% from 31.4%.

Earnings Per Share (EPS) surged to NGN6.6 from NGN1. Despite a fall in revenue (year-on-year), returns to shareholders got better in the year under review.

The working capital management is a plus for the management; consequently, the company is not headed for liquidity problem. The company has been reducing its indebtedness in order that profitability will not be impaired. In fact, giant strides have been made in this regard.

Capital spending has been responsible for dwindling free cash flow. PHARMDEKO does not pay dividend regularly to shareholders.  Instead, it ploughs back its profit into the business and this has reduced the need to borrow heavily to expand the business or upgrade its capacity. We believe the shareholders stand to benefit from this going forward.

We are of the opinion that sales will rebound once the recession in Nigeria abates. Equipment overhaul halted production and led to a revenue decline in Quarter 3 of 2016. 

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