Mediq will report 2Q12 results on Thursday 26 July before market.
The 1Q results were disappointing on the Pharmacies Netherlands REBITA level (-68%) due to lagging volumes, price pressure and higher-than-anticipated costs related to the market liberalisation and wage cost inflation. We adopt a cautious stance towards Mediq’s Dutch pharmacy chain. Our Accumulate rating reflects the undemanding valuation combined with the challenges of Pharmacies NL. There will be an analyst meeting at 12am in Amsterdam, which we will attend. Conference call at 3pm.
2Q12 forecasts: We expect 2Q12 sales of € 670m (-3% organic, +6% acquisitions, -1.5% FX), in line with css of € 670m. 2Q12 consolidated REBITA is expected to decline by 2% to € 29.1m. We are above CSS REBITA of € 27.8m because the CSS REBITA in the ‘Other’ line of € -2.8m includes pension transition costs (which we estimate at € -2.5m) that are non-operational and should therefore be booked under group EBITA. A tax rate of 25% leads to a decrease of -20% in net profit to € 13.6m (css € 13.3m). This boils down to 2Q12 EPS of € 0.24 (css € 0.23) and adjusted 2Q12 EPS of € 0.33 (css € 0.31).
Pharmacies Netherlands: The liberalisation of the Dutch pharmacy market (pharmacies can now negotiate directly on drug reimbursements tariffs with healthcare insurers where in the past those tariffs used to be fixed) from 1 January 2012 triggered a 68% drop in Pharmacies NL 1Q12 REBITA. Any sign of management’s confidence in a 2H12 improvement will therefore be highly supportive for the investment case, but the 1H12 numbers show no hint of a rebound.
Direct & Institutional: We expect D&I to post 2% underlying organic growth and a drop in the REBITA margin from 9.4% to 8.8% as a result of additional costs related to the new distribution centre in Sweden. 2Q12 REBITA also faces a difficult comparison base: 8.9% in 1Q11, 9.4% in 2Q11, 8.7% in 3Q11 and 9.4% in 4Q11.
Conclusion: We keep our Accumulate rating and € 13 TP but prefer to adopt a cautious stance towards Mediq’s Dutch pharmacy chain, which is where we expect most of the market attention to be focused.