Chemiсals and pharmaceuticals

Дефляция на практически все виды товаров и сырья в 2008–2009 гг. была особенно ярко выражена для природного газа. Падение цен на азотные удобрения было меньшим, и может продолжиться. Украинские азотчики неконкурентоспособны, так как цены на природный газ в Украине существенно выше спотовых мировых. Тяжелые краткосрочные перспективы создают предпосылки для передела отрасли, которая, на наш взгляд, очень перспективна со средне– и долгосрочной точки зрения.

Most leading Ukrainian pharmaceutical companies are outperforming the quickly growing market and obtaining market share, successfully competing with large foreign players. While international pharmaceutical producers own the market in value terms (78%), local ones own it in volume terms (61%), due to their lower price segment specialization. However, we expect local producers’ share to increase owing to a shift to the higher price segment and government support. The ability to produce more expensive drugs is supported by GMP certification and outstanding local R&D potential.

Farmak is one of the top three pharmaceutical producers in terms of output volumes in Ukraine with a strong position on the domestic market. Its well-recognized brand portfolio consists of 140 products. Stable revenue growth (+21.2% YOY and +38.9% YOY in 2006 and 2007, respectively). In 2008, the EBRD gave it a CapEx of USD 24.2 mln. Ownership is concentrated in one hand. We recommend BUYing Farmak, with an upside of 80.3% and are setting a fair target price of USD 85.7 based on several factors that, in our opinion, will drive FARM’s market price up.

Concern Stirol, a major and the most diversified Ukrainian nitrogen fertilizer producer, is set to either change its mode of operations or become unprofitable. The main reason for future losses of current Stirol is the unavoidable rise in natural gas prices. Stirol already missed an earlier IPO opportunity, and will have no cards to play beyond Fall 2007. At that time, the company can either initiate a half-way Internal Change, or undergo an External Re-evaluation via changes in ownership. A cleanup of all business segments, necessary in both cases, would only be explicitly demonstrable within the External Re-evaluation scenario. Speculation on management’s desire to be re-evaluated is an attractive, but risky, investment opportunity.