Analysts recommend ‘buy’ for May and Baker

Following the recent divestment from its non-core operation and a recent right issue, May and Baker looks set to focus on its core business of drug manufacturing and capitalise on the increasing demand for drugs in the country.

This has prompted some market analysts to recommend a “buy” advice for the shares of the pharmaceutical giant.

According to McKinsey & Company, the Nigerian pharmaceutical market is expected to grow 9 percent per annum over the next ten years as manufacturing growth is expected to meet the burgeoning demand.

The company is a major player in the local drug manufacturing market with a 4 percent market share and an average of N8 billion in annual sales over the last five years.

The pharmaceutical market is expected to register robust sales growth over the next few years because of increasing insurance coverage, the rise of private-public partnerships in healthcare, investments in healthcare infrastructure and favourable government policies.

May and Baker, in a bid to fund its expansion project and partly leverage its balance sheet, has decided to look towards raising capital through the capital market for the first time in 12 years.

Earlier in the year, the management of the drug firm announced the sale of its food division to commit resources towards driving growth in its core business of drug manufacturing that has delivered solid growth over the years. Asides from delivering most of May and Baker’s volume sales, Pharmaceutical segment’s gross margin is higher at 43 percent on the average over the last ten years.

May and Baker are also set to increase its contribution in the biovaccine production as it goes into a joint venture with the Nigerian government. They believe that this joint venture provides significant opportunity to boost revenues in the medium term, stemming from high demand for vaccination in Nigeria with the country’s high birth rate.

Cordros Capital analysts said, “we initiate investment note on May and Baker with a BUY rating at N4.43 per share. The company is in the process of raising capital through rights and following the recent divestment from the loss-making Food business, going forward, we estimate 12 percent and 14 percent 5-year revenue and EBITDA CAGR.”

They also forecasted that the pharmaceutical company’s gross margin will recover to 39 percent in 2019 and will average 40 percent over 2019 to 2021.