Proposed legislation from the United Kingdom has Laurentian Bank Securities analyst Joseph Walewicz feeling less bullish about Concordia Healthcare (Concordia Healthcare Stock Quote, Chart, News: TSX:CXR, Nasdaq:CXRX).
The United Kingdom’s Health Service Medical Supplies (Costs) Bill, which aims to manage the cost of health service medicines, was introduced into the House of Commons on Sept. 15, 2016 and Concordia Friday commented on its ramifications.
“Concordia is supportive of any action that provides patients with greater access to safe and efficacious medicines,” said Concordia CEO Mark Thompson. “We anticipate that growth from our international segment, which includes the United Kingdom market, going forward will primarily come from new product launches. We are monitoring the bill and evaluating its timing and its impact, if any, on our business.”
Walewicz says that although he isn’t making any adjustments to his model, the U.K. news does create a level of macro uncertainty. “Our valuation, which is based on an EV/EBITDA multiple on our F2017 forecast, is highly volatile depending on our assumptions,” explains the analyst. “This is driven by CXRX’s substantial leverage – for example, a multiple in line with peers (7.9x our 2017E) would value CXRX at US$22.00 while a 25% discount to the peer group gives a target of ~US$1.00. Given that sensitivity, and the lack of visibility into future growth, investors should remain cautious on the shares despite attractive cash flows and a manageable balance sheet.”
In a research update to clients today, Walewicz maintained his “Hold” rating and cut his price target on Concordia Healthcare from (U.S.) $12.00 to $6.50.
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