We initiate coverage of The Searle Company Ltd. (SEARL) with our Dec’17 Target Price of PKR 816.60/share; at current price levels the scrip offers a 33% upside potential. Our investment thesis is premised on i) significant growth expected in the topline on the back of anticipated expansion, macroeconomic triggers, industry dynamics, and improving outreach, ii) unsurpassed margins, and iii) expected rise in foreign interest in the scrip amidst inclusion in MSCI EM and FTSE GEIS. Further to it, SEARL is by far one of the safest scrips in the sector given it is relatively immune to the uncertainty of pricing mechanism and respective regulatory outcomes.
Double Digit Growth in Topline Expected to Lead to Greener Pastures
Premised on the back of the anticipated expansion together with (i) Pakistan’s improving macroeconomic levels, (ii) growing awareness of advantages of nutrition based biopharmaceutical products, and (iii) country’s overall demographics with SEARL’s growing distribution network; we expect the company’s leading chronic, analgesic, and nutrition product mix to lift the topline north of 20% YoY in FY17E (PKR 11,435mn). Based on our estimates, top 30 products that make up over 50% of the total revenue, are expected to post over 13% of jump in sales during FY18 (in excess of PKR 7,000mn), while the biopharmaceutical products that are already in production, estimated to have broken-even, should start churning high margin sales with an anticipated growth of over 1.5x in FY18. Incorporating this exceptional growth, our estimates point to a 5Y CAGR of 22% (FY16-21F) translating into FY21F net revenue of PKR 26,149mn.
Concurrently, with improved margins in FY17 along with the anticipated generous dividends from its subsidiaries, we expect SEARL to post a growth of 48% YoY in its bottom-line in FY17E (EPS: PKR 20.04) with a 5Y CAGR of 20% (FY16-21F) taking the FY21F net profit to PKR 5,171mn (EPS: PKR 33.59).
Industry Leader in Margins with a Promising Business Model for the LT
Recently, while stay order on hardship cases facilitated some of its competitors translating into improved margins, SEARL made significant advances of its own. In the 2QFY17, while SEARL successfully managed its Gross Margins at 41%, its Net Margins surged up to 29% from an earlier 20% in FY16, providing a momentous headway compared to industry’s average NM of 13%. Going forward, we believe, with the high-margin Bioscience’s sales expected to post double digit growth coupled with possible enhancement of its existing pharma facilities, SEARL may further increase its GMs up to ~43% while maintaining its NMs at higher 20s (given the expected increase in its marketing efforts).
Preferred Pick with Largest Free Float / Foreign Inflows / Competitive Adv.
Tied to its long term growth prospects, superseding margins, and a solid business plan in place, SEARL gets our preference in the sector based on its i) largest free float in the industry of 62.97mn, ii) inclusion in MSCI EM and FTSE Global Equity Index Series Asia Pacific (ex-Japan), and iii) competitive advantage over various MNCs.
SEARL’s board of directors are to announce the 3QFY17 results on 24th Apr’17. Earnings are forecasted to clock-in at PKR 788mn, translating into an EPS of PKR 5.12 (up by 6% QoQ), premised on the back of higher sales and rising other income. With an anticipated rise in demand for company’s product mix (especially Nuberol Forte, Hydryllin, and Peditral) along with inclusion of biosciences products, we expect the topline to grow at 10% QoQ to PKR 2,836mn with gross margins intact at 41%. On the other hand, SEARL’s other income driven by its subsidiary Searle Pharmaceutical is expected to post similar level of earnings as prior quarter, forecasted at PKR 650mn.
The Searle Company Limited
April 25th, 2017
FINANCIAL RESULT FOR THE NINE MONTHS ENDED 31/03/2017
(UNCONSOLIDATED) PROFIT/LOSS BEFORE TAXATION RS. IN MILLION 2,177.721
(UNCONSOLIDATED) PROFIT/LOSS AFTER TAXATION RS. IN MILLION 2,005.756
(UNCONSOLIDATED) EPS = 13.03
(CONSOLIDATED) PROFIT/LOSS BEFORE TAXATION RS. IN MILLION 2,151.006
(CONSOLIDATED) PROFIT/LOSS AFTER TAXATION RS. IN MILLION 1,784.926
(CONSOLIDATED) EPS = 11.41
Result Review: 1QFY18 EPS @ PKR 4.18 1QFY18 Profitability up by 4% YoY
Searle Company Limited (SEARL) announced its 1QFY18 financial result today. The company posted a profit after tax of PKR773mn (EPS: PKR 4.18) during 1QFY18, up by 4% YoY. On a sequential basis, earnings recorded a rise of 22% led by higher sales and increase in other income.
The company’s topline grew by 18% YoY in 1QFY18, clocking-in at PKR 3,246mn compared to PKR 2,759mn in the 1QFY17 on the back of volumetric growth while no price change is observed, we view.
Importantly, the company Gross Profit Margin settled at 32% in 1QFY18 compared to 37% and 40% recorded in 1QFY17 and 4QFY17, respectively.
Admin expenses shooted by 46% YoY to PKR 166mn compared to PKR 114mn in the prior period, whereas, company’s admin expenses decayed by 41% QoQ.
Furthermore, company’s ‘Other Income’, supporting dividend stream from its fully owned subsidiaries, registered at PKR 724mn (PKR 589mn in 1QFY17), increased by 23% YoY.
On a YoY basis, SEARLE’s bottom line relects a subtle growth of 4% led by a slow increment in gross profit by 2%.
Effective taxation stood at 6% in 1QFY18 compared to 11% in previous year, likewise effective taxation reduced by 3% QoQ compared to 9% in 4QFY17.
Net Margins during 1QFY18 were recorded at 24% compared to 27% and 23% in 1QFY17 and 4QFY17, respectively.
Currently our recommendation on SEARLE is under review.
As on today 52 weeks low was Rs 298.21 while today's closing is Rs 329.37. Its PE is about 16 times which appears high as per my understanding. Dividend yield is about 2.5% excluding bonus. Do your homework before investing.
Searle Co. ltd. ransacks minority shareholders
November 18, 2019
KARACHI: Searle Company Ltd in October 2019 had announced to acquire LUNA Pakistan from Universal Ventures (UV) in sum of Rs 8600 million, but the company did not share its detail for payment and sufficient information with the minority shareholders.
Searle has also granted UV a call option to acquire 25 per cent shares of LUNA (or its successor-in-interest) within a period of 12 months from the transfer of shares to Searle.
Luna, which is already acquired by UV against Rs 11 billion is now owned by Moonis Abdullah, the son of Rashid Abdullah, who is the largest shareholder of International Brands Ltd (IBL). IBL’s currently holding of 57 per cent in Searle is a clear indication of “conflict of interest” related parties involved in this transaction.
The exact details of the transaction are shrouded in mystery as Searle has not yet shared the sufficient information with the shareholders.