ALAPIS ALAPIS GA
October 15, 2009 - 4:36pm EST by
dantes888
2009 2010
Price: 0.65 EPS $0.13 $0.15
Shares Out. (in M): 1,961 P/E 5.0x 4.3x
Market Cap (in M): 1,975 P/FCF 22.0x 9.0x
Net Debt (in M): 410 EBIT 260 300
TEV: 2,385 TEV/EBIT 9.0x 8.0x

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Description

ALAPIS / ALAPIS GA

 

Current Price (10/13/09):  EUR0.65, Price Target:  EUR1.10

Business Overview

Alapis is a Greek manufacturer of pharmaceuticals and para-pharmaceutical products, veterinary pharmaceuticals, cosmetics, detergents, and organic products mainly for the Greek but to some degree south-eastern European markets. The company operates two segments, Health and Non-Health. The Health segment (91% of sales, 98% of EBITDA) offers prescribed medicines, OTC drugs, veterinary products. The Non Health segment (9% of sales, 2% of EBITDA) makes and markets detergents, cosmetics, and nutritional supplements.

Investment Thesis

Alapis nearly controls the Greek pharmaceuticals market, where it operates a one-stop shop. All branded generic drugs that are sold in Greece have to go through intermediaries such as Alapis. The company has by far the largest and best trained sales-force. The company is slated for a number of years of strong growth given its increasing focus on medical devices (diabetes and renal care), and veterinary products, both of which have  much lower penetration n Greece than other European markets. Alapis has launched about 150 products so far this year and has additional 170 products in the pipeline, and is therefore likely to grow by 10-15% in the coming years, with EBITDA margins above 30% . Despite its unique franchise and superior growth prospects, the company trades at 4,3 times forward earnings, or over 60% discount to peers.

This discount can be explained by Alapis’ recent origins: the company is the aggregation of four entities in recent years, and has a short capital market history - which creates an attractive opportunity. Further, investors are still digesting a recent secondary offering of EUR451.1 million in September (with proceeds used to pay-down short-term debt and continue to consolidate the Greek and Eastern European markets).  The main Shareholder (Lamba Partners, a private equity fund) fully subscribed to the offering, and top management has recently added to their holdings.

Valuation

FYE 12/31

2007

2008A

2009E

2010E

2011E

           

EV / Sales:

2.4x

1.0x

0.8x

5.5x

0.7x

EV / EBITDA:

9.3x

5.9x

3.3x

2.9x

2.4x

EV / (EBITDA-Capex):

-5.6x

-1.9x

6.0x

4.8x

3.6x

PE:

8.0x

12.8x

4.9x

4.3x

3.2x

           

Dividend Yield:

2.0%

7.0%

4.8%

5.5%

5.0%

The company is trading at P/E levels that are 50-60% lower than other companies within the sector

Given the company’s built-in growth prospects, benign competitive landscape and accretive acquisitions, we believe the stock should trade in line with peer group multiples of 10-11x earnings, implying over 100% upside potential from current levels.

 

Key risks / concerns

·         Greek companies operating in their home market face very difficult working capital issues, with long DSO. The hospitals have previously been slow to pay the company, but given Alapis’ position as a key supplier, we expect working capital conditions to improve going forward.

·         Small clients / pharmacies with inadequate financing access may cease operations

·         Investors are concerned about intentions of the main shareholder, though the latter has participated in the rights issue and views his holdings as financial in nature.

 

 

 

 

 

 

Catalyst

Accretive acquisition (over next 12 months)

Greek State hostpitals payment of outstanding invoices (over next 2 quarters)

US roadshow (next month)

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    Description

    ALAPIS / ALAPIS GA

     

    Current Price (10/13/09):  EUR0.65, Price Target:  EUR1.10

    Business Overview

    Alapis is a Greek manufacturer of pharmaceuticals and para-pharmaceutical products, veterinary pharmaceuticals, cosmetics, detergents, and organic products mainly for the Greek but to some degree south-eastern European markets. The company operates two segments, Health and Non-Health. The Health segment (91% of sales, 98% of EBITDA) offers prescribed medicines, OTC drugs, veterinary products. The Non Health segment (9% of sales, 2% of EBITDA) makes and markets detergents, cosmetics, and nutritional supplements.

    Investment Thesis

    Alapis nearly controls the Greek pharmaceuticals market, where it operates a one-stop shop. All branded generic drugs that are sold in Greece have to go through intermediaries such as Alapis. The company has by far the largest and best trained sales-force. The company is slated for a number of years of strong growth given its increasing focus on medical devices (diabetes and renal care), and veterinary products, both of which have  much lower penetration n Greece than other European markets. Alapis has launched about 150 products so far this year and has additional 170 products in the pipeline, and is therefore likely to grow by 10-15% in the coming years, with EBITDA margins above 30% . Despite its unique franchise and superior growth prospects, the company trades at 4,3 times forward earnings, or over 60% discount to peers.

    This discount can be explained by Alapis’ recent origins: the company is the aggregation of four entities in recent years, and has a short capital market history - which creates an attractive opportunity. Further, investors are still digesting a recent secondary offering of EUR451.1 million in September (with proceeds used to pay-down short-term debt and continue to consolidate the Greek and Eastern European markets).  The main Shareholder (Lamba Partners, a private equity fund) fully subscribed to the offering, and top management has recently added to their holdings.

    Valuation

    FYE 12/31

    2007

    2008A

    2009E

    2010E

    2011E

               

    EV / Sales:

    2.4x

    1.0x

    0.8x

    5.5x

    0.7x

    EV / EBITDA:

    9.3x

    5.9x

    3.3x

    2.9x

    2.4x

    EV / (EBITDA-Capex):

    -5.6x

    -1.9x

    6.0x

    4.8x

    3.6x

    PE:

    8.0x

    12.8x

    4.9x

    4.3x

    3.2x

               

    Dividend Yield:

    2.0%

    7.0%

    4.8%

    5.5%

    5.0%

    The company is trading at P/E levels that are 50-60% lower than other companies within the sector

    Given the company’s built-in growth prospects, benign competitive landscape and accretive acquisitions, we believe the stock should trade in line with peer group multiples of 10-11x earnings, implying over 100% upside potential from current levels.

     

    Key risks / concerns

    ·         Greek companies operating in their home market face very difficult working capital issues, with long DSO. The hospitals have previously been slow to pay the company, but given Alapis’ position as a key supplier, we expect working capital conditions to improve going forward.

    ·         Small clients / pharmacies with inadequate financing access may cease operations

    ·         Investors are concerned about intentions of the main shareholder, though the latter has participated in the rights issue and views his holdings as financial in nature.

     

     

     

     

     

     

    Catalyst

    Accretive acquisition (over next 12 months)

    Greek State hostpitals payment of outstanding invoices (over next 2 quarters)

    US roadshow (next month)

    Messages


    SubjectEstimates
    Entry10/16/2009 09:37 AM
    Membersancho

    Consensus EBITDA for 09 and 2010 are Eur331mm and 379mm, which imply 6.3x and 5.5x EV/EBITDA. Not bad, but far from the 3.3x in your table. What accounts for the difference? Thanks.


    SubjectRE: Estimates
    Entry10/16/2009 11:59 AM
    Memberdantes888

    Thanks for the question. The market cap is indicated in $'s, and the estimates are in Euros...the currency printing machines at the fed thus explain the difference. 


    SubjectRE: Two questions
    Entry10/16/2009 06:25 PM
    Memberdantes888

    1. Market cap (as of today) is 1215. I had for reasons that clearly do not make sense reported it in $'s.

    2. Company has about 410 million in net debt (had 850 million pre secondary). The placement may not make sense given the valuation at which it was concluded but management wanted to take advantage of the open window to secure cash in order to 1. de-lever (they were running at over 2.25 times net debt to EBITDA) and take advantage of consolidation opportunities.

    3. The risks have already materialized here: long payment periods historically from key customers, poor investor relations practice given inopportune timing of rights issue. I think securing payments from key clients and accretive acquisitions as well as roadshow in NY will help this stock achieve reasonable valuation again.  


    Subjectdantes888 - update. Interesting yet??
    Entry11/08/2010 08:30 AM
    Membergary9
    Dantes:  stock is down about 90% from when you recommended it.  The Greek government debt situation has been a clear headwind for the stock.  Can you update the board on the situation?  Is the stock an terriffic buy now?
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