Galen expected to deliver strong results

STOCKBROKERS expect Galen Holdings to deliver strong results tomorrow with Davy’s anticipating an 18% increase in product revenue growth.

Davy’s analyst Jack Gorman said with Galen reporting in US dollars for the first time this will remove the negative impact of dollar weakness that would have occurred if the results were reported in sterling as was the case up to now.

Mr Gorman said despite spending $295 million on the purchase of the Sarafem from Eli Lilly the company still has reserves and said he would not surprised if another product deal was announced over the course of the first half of 2003.

“Stripping out the services division, last year’s EBITA and adjusted EPS were $18.3m and 7.5c respectively. We believe that Galen can generate product revenue growth of 18% to $65m. This will be driven by Ovcon, Doryx and the first time contributions from Duricef/Moisturel, note Sarafem will not be included in Q1out-turn,” he added.

Goodbody’s rates Galen a buy at £3.26 and have placed a £4.10 target on the stock despite concerns about patents on some of its key drugs.

In a detail note on the Irish pharmaceutical sector circulated to Goodbody clients, entitled In the Recovery Room, the brokers said that despite two recent knock to sentiment on the stock they believe there has been no fundamental change to Galen’s business in the past month that changes their view of the stock. “We reiterate that from information currently available, we forecast earnings growth to be maintain at a compound annual growth rate of over 26% for the next three years,” Goodbody’s said.

“The company still has a strong balance sheet and, we forecast, will again be in a cash position by 2004. It therefore retains the flexibility to make further acquisitions through 2003. The current share price, at only 8.1 times calendersied 2003 earnings estimates, appears to be very attractive.Our revised price target of £4.10 has the stock trading on a modest 9.8 times 2003 forecast earnings, a considerable discount to its peers (24%) but broadly in line with such companies as Shire who are facing similar patent/generic threat issues.”