Beximco Pharmaceuticals (LSE: BXP) flies under the radar of most investors despite the company’s enormous potential.
Operating out of Bangladesh, Beximco designs, manufactures and supplies generic versions of drugs that have come off patent. The company is extremely good at this. Between 2011 and the end of the company’s 2016 financial year, sales grew at an average rate of 25.3% per annum, and net profit expanded at an average annual rate of 23% over the same period.
Despite this growth, investors have avoided Beximco for much of the past five years. Over the five years to the end of 2015, shares in the company fell by 40%, as the market seemingly gave up on Beximco. However, this year the market has regained confidence. Shares in Beximco have gained close to 100% year-to-date and there could be further gains to come.
Further growth ahead
Beximco is one of the world’s fastest growing pharma companies and it’s also Bangladesh’s most successful business. This year it has become the first Bangladeshi firm to ship medicine to the United States, the first Bangladeshi company to receive approval for the sale of its products within Canada, and the first Bangladeshi company to enter the Gulf market. All of these approvals are a testament to its goal of providing high-quality treatments at affordable prices. The company produces more than 500 products in different dosage forms covering broad therapeutic categories with many more under development.
The most exciting part of Beximco’s investment case is the company’s growth potential. For much of its life, it has been a domestic pharmaceutical company, producing treatments for its home market in Bangladesh. Back in 2014, just 6% of Beximco’s sales were to the export market.
Today, management is concentrating on driving export growth. Since 2014 the company has been granted the rights to sell its products in Europe and the US, as well as other smaller regions. This export drive has supercharged the group’s growth. For the three months ended September 30, Beximco reported year-on-year revenue growth of 12%, pre-tax profit up 24%, and earnings per share up 22%.
However, despite this growth the shares are trading at an astonishingly low forward P/E of just 9.3.
Under the radar
Beximco seems to fly under the radar of most investors, which is why the shares trade at an attractive valuation. The pharmaceutical sector average P/E is 14.3, making Beximco one of the sector’s cheapest opportunities.
Now the company is exporting outside of Bangladesh, this discount doesn’t make much sense. Indeed, if the group’s sales continue to grow at their current rate (and as the company starts to conquer the rest of the world there’s no reason why they can’t) Beximco could quickly become one of the world’s premier drug manufacturers taking on the likes of GlaxoSmithKline.
Even though Beximco is a tiddler compared to Glaxo today, global expansion could quickly change that.
