Square Pharma shares sink to 68-month low

Share prices of Square Pharmaceuticals Limited closed on Thursday at Tk226.9 – the lowest since January 2014.

This is a 32-month low considering the price adjustment against stock dividends each year.

The price-to-earnings (P/E) ratio of the industry leader's shares, too, has come down to 14.26 multiples – the lowest since 2013, according to Dhaka Stock Exchange data.

In January 2014, the share price of the firm was Tk228, and the P/E ratio touched 31.3 multiples following a price gain over months.

However, the firm maintained the P/E ratio at 20 multiples on an average since 2013, according to an equity research team of one of the top-three brokerage firms.

The psychologically important event of the 68-month low price of Square's shares has drawn the attention of analysts at different equity research teams in the country.

A market research team of BRAC EPL Stock Brokerage Limited has come up with a fresh buy recommendation for their selective clients amid the stock's lowest pricing against the company's fundamentals since 2013 at least.

In a private note to their top clients, including foreign investors, the BRAC EPL team has mentioned that Square's shares are now the cheapest in the last 6.5 years.

The Business Standard obtained a copy of the letter where the BRAC EPL researchers have said they are expecting a growth in the company's business, and dividends in the coming days.

The letter says that it is a good time to purchase Square Pharma shares at a falling rate.

"The valuation multiples [of the company] strongly signal [the investors] to buy Square Pharma shares at the current price," it reads.

In the letter, analysts at the brokerage firm highlighted the 6.5-year-lowest price-to-earnings ratio of Square shares since they kept record of the company.

It means that if an investor buys Square Pharma shares now, and holds on to them for the next 14 to 15 years, the earnings-per-share at the current rate is supposed to be enough to fully recoup the money invested in the shares, explained Mehedee Hasan, a senior portfolio strategist of the BRAC EPL.

If an investor gets prepared this way, the potential capital gain from the stock, if any during this period, will come to him as a bonus, added Mehedee, also an assistant director at the brokerage firm.

Square Pharma shares maintained a trend of giving over 20 percent annual returns on an average to its investors for more than two decades before it slowed down in recent years.

Two years earlier, many equity research teams observed that Square Pharma was growing at a moderate pace with fair profitability, but slowly it started losing its market share to some aggressively expanding competitors.

And that led the investors to become conservative in buying shares of the first generation drug manufacturer.

Besides, some foreign and local investors' profit booking (or selling stocks as they increased in value) also pushed down the price of Square Pharma shares since the beginning of 2018.

But now, analysts are counting on the upcoming foreign currency revenues from the company's offshore plant in Kenya, which is strategically aimed to explore the export markets better.

As Square Pharmaceuticals closes its accounts in June each year, the company is expected to disclose its annual financial results and declare dividends in the second half of October.

The BRAC EPL team predicted that the company might post a Tk15.5 earnings-per-share – a 5.8 percent year-on-year growth.

They also expected a cash dividend of not less than 40 percent, along with a stock dividend of around five percent.

With its inception in 1958, Square Pharmaceuticals emerged as the industry leader in the mid-80s, and got listed with the local bourses in the mid-90s.

According to its latest annual report, the company, with around a 17 percent market share, is selling a wide range of pharmaceutical products worth over Tk4,500 crore per year.

Moreover, it currently exports its products to over 40 countries, and exports are expected to increase further in coming days.