In a previous post, I mentioned that I have started to purchase stocks on a monthly basis using my brokers regular investment service. The rational behind this was that it is impossible to time the market and though stock prices may be highly inflated now, there is no knowing how long this will last or if this is the new normal. By investing on a regular basis, I will not miss out on any gain in the market. Also, there is always pockets of value to be found and by investing once a month, I force myself to look hard and find businesses that offer value.
For my September stock purchase, I bought 14 shares in the FTSE listed healthcare firm, Hikma pharmaceuticals.
Hikma is a developer, manufacturer, and marketer of a broad range of branded and non branded generic pharmaceutical products. It drives most of its revenue from the Middle East, North Africa and the US but also has some presence in Europe. What has impressed me about this company is its strategy, its diversified business model as well as the future growth prospects it offers.
Looking at the financials, the company has grown revenues over the past 5 years from $918 million to $1.44 billion. The profits made by the business over this period have also jumped going from $94 million in 2011 to $318 million in 2015. This 238% increase in profits is really impressive. Saying this, there has been a blip over the past year as revenues dropped by 3% and profits by 12% . Whilst this is disappointing for a company that has recorded stellar growth of late, it is important to remember that hardly any business moves in a perfect straight line. The consensus estimates by analysts is that Hikma’s will return to growth this year. Thus this small detraction of both revenues and profits in 2015 is only a blip and not a long term structural concern for the company. Hikma’s economic engine is still well and truly intact and propelling the company forward.
What has fuelled the growth in recent years is the the strategy laid out by management . Hikma has gone into the right products and this is shown by the fact that the company has a high Return on Invested Capital (ROIC) of 23% over the past 5 years.
My Purchase of Hikma Pharmaceuticals (Lon: HIK)
As mentioned above, I purchased, 14 shares in Hikma. In total I paid, £295 for this transaction meaning that I bought Hikma shares at a price of £21 a piece including dealing fees and stump duty taxes.
The company currently has an earnings per share figure of 126 cents or 97p at current exchange rates. This gives it a Price/Earnings ratio of about 21. This is higher that the other FTSE listed pharmaceutical companies such as GSK and AstraZeneca (LINK) but it is due to the higher growth ate expected of Hikma over the coming years.
The company also paid out a divided of 32 cents a share over the past year. This equates to about 24.65 p or £3.45 for my 14 shares. Whilst this 1% yield on initial cost does seem rather low, it is important to remember that Hikma is a growth stock that is expected to increase its dividend at a decent rate going forward.
The company paid out a dividend of 13cents a share in 2011 and as the current dividend is 32cents, the dividend has grown by over 140% in the previous 5 years. If this growth rate continues, I can expect to double my current dividend in the next 3-4 years! And with Hikma only paying out about 25% of its profits as dividends, this is certainly possible.