Nigerian Healthcare & Pharmaceuticals

Sector Update

January 2011

Healthcare in Nigeria
Healthcare/Pharmaceuticals Sector
Nigerian Healthcare & Pharmaceuticals Sector
Update
The provision of healthcare in Nigeria is the responsibility of all three tiers
of government. The federal government's role is centered primarily around
the formulation and implementation of broad healthcare policy as well as
the management of teaching hospitals (tertiary healthcare). The state
governments manage various general hospitals (secondary healthcare)
while local governments are tasked with the provision of primary
healthcare services in the form of dispensaries and clinics. Nigeria’s
pharmaceuticals sector is regulated by the National Agency for Food and
Drug Administration and Control (NAFDAC).
In the last five decades, the Nigerian health sector has remained grossly
underdeveloped, despite seeming better off than other African peers.
Healthcare delivery in Nigeria is characterized by inefficient budget
execution, inadequate funding, poor service quality and a shortage of
qualified personnel essential to the delivery of public health services.
Despite modest increases in healthcare budgetary allocation,
improvements to key health indicators have been rather limited. Nigeria’s
health indices remain amongst the poorest in the world. As of 2009, life
expectancy was estimated at 47.7 years, while infant mortality rate was 75
per 1000 live births. The country’s maternal mortality rate deteriorated
from 800 to 1,100 per 100,000 live births between 2000 and 2010. High
infant and child mortality/morbidity rates are the effects of poor
sanitation, low income and other determinants of poverty through the
occurrence of infectious diseases such as malaria, HIV/AIDs, TB, diarrhoea
and cholera. Poverty is widespread with over 70.0% of the population
living below the poverty line, with an ever widening gap between the rich
and the poor.
The absence of effective methods of addressing the healthcare needs of
the poor and underserved populations (mainly in rural areas) as well as the
low levels of government expenditure (currently averaging 5.4% of the
total budget since 2008) have contributed to the nation’s dismal health
statistics. Other indicators show that only about 10.0% of Nigerians have
access to essential drugs, with a workforce estimated at 4 physicians to
every 10,000 people. Worse still, the level of healthcare for such chronic
conditions as hypertension, diabetes and arthritis prevalent in ageing
populations is grossly insufficient.
1
Chart 1: 1990 Life Expectancy at Birth Nigeria vs. Others Chart 2: 1990 Life Expectancy at Birth Developed Countries

80 Years 72 80 Years 79
65 66 67 78 77 77
70 63 76
58 58 60 60 75 75
60 55 76
51
46 74
50
72
40 69
70 68
30 68
20 66
10 64
0 62

UK
China

Germany

Russia
Kenya

Africa

Chile
Ghana

Brazil
CAR
Cameroon

Congo

South

Morocco

Canada

France

USA
Japan
Nigeria

India

Algeria
Source: WHO, Afrinvest Research Source: WHO, Afrinvest Research

Chart 3: 2010 Life Expectancy at Birth Nigeria vs Others Chart 4: 2010 Life Expectancy at Birth Developed Countries

90 Years Years
79 90 81 81 80 83 80
80 71 73 78
69 80 74
70 64 68
57 60 70
60 53 55
49 51 60
47
50
50
40
40
30
30
20
20
10
10
0
0
Africa
Kenya

Ghana

Chile
Brazil
CAR
Cameroon

Congo
South

Morocco
Nigeria

India

Algeria

UK
China

Germany

Russia
Canada

France

USA
Japan

Source: WHO, Afrinvest Research Source: WHO, Afrinvest Research

Chart 5: Estimated Under 5 Mortality Rate in 2008 Chart 6: Infant mortality rate Per 1000 Live Births 2008

200 186 120

96 100
160 144 100
128 81
80
120
76 60 48 51 52
80 67 69
40
40 18 18
21 22 20 9
3 4 6 8 11 3 3 5 5
0 0
UK

UK
South Africa

Ghana

Kenya

Liberia

Nigeria

South Africa

Ghana

Kenya

Nigeria

Liberia
Brazil

Brazil
USA

USA
France

Russia

China

India

France

Russia

China

India
Japan

Japan

Source: WHO, Afrinvest Research Source: WHO, Afrinvest Research

Healthcare/Pharmaceuticals Sector
2
Nigeria’s Disease Burden
Malaria Malaria is a major health problem in Nigeria, as the country accounts for as
much as a quarter of the total malaria burden in Africa. Malaria is
responsible for about 60.0% of all clinic attendances and accounts for
approximately 20.0% of childhood mortality and 11.0% of maternal
mortality cases in Nigeria. The key challenges facing malaria control
include inadequate provision of anti-malaria drugs and the use of
preventive measures such as insecticide-treated nets, a dearth of technical
skills/competence, infrastructure for managing the storage and distribution
of large quantities of medicines, insufficient human capital, high cost of
service delivery at sub-national levels, lack of proper/efficient
management structures and capacity at state and local government levels
and inadequate funding. There have however been renewed efforts aimed
at controlling malaria such as the targeted use of Artemisinin-based
Combination Therapies (ACT’s, a more effective treatment), encouraging
the widespread use of insecticidal nets and indoor residual insecticide
sprays to combat the vector, mosquitoes.

HIV/AIDS Estimates by the Federal Ministry of Health indicate that approximately 3.0
million people were living with HIV/AIDS in Nigeria in 2009, with a total of
192,000 deaths attributed to the disease. One of the most significant social
and economic impacts of HIV/AIDS is the ever increasing number of AIDS
orphans, which was estimated at 2.1million in 2008 and 2.2million in 2009.
The Nigerian government has however shown considerable commitment to
the fight against HIV/AIDS. Through the HIV/AIDS governing body, the
National Agency for the Control of Aids (NACA), government has
articulated policies which influence every area of the nation’s response to
the HIV/AIDS scourge. The revised HIV/AIDS policy is a result of broad
consultations with various relevant stakeholders such as civil society
organizations, government ministries and parastatals, development
partners, donor agencies and community based organizations.

Cholera The National Health Policy emphasizes the importance of adequate health
care to social and economic development and acknowledges primary
healthcare as the foundation of Nigeria’s healthcare system. Over the last
few years, there has been an increase in government spending directed
towards providing new facilities mainly at the primary healthcare level.

Healthcare/Pharmaceuticals Sector
3
Polio Over the years, Nigeria has maintained a high incidence of Wild Poliovirus
(WPV) cases due to persistently low levels of immunization in children. In
2008, Nigeria reported 798 polio cases, the highest number in the world.
Reported polio cases however decreased to 388 in 2009 (24% of global
cases), reaching an all-time low during the first half of 2010, with only
three reported cases. In 2009 - 2010, the increased involvement of
traditional, religious and political leaders aided the acceptance of
vaccination and implementation of high-quality supplementary
immunization activity. In June 2010, the Centers for Disease Control and
Prevention reported a significant drop in polio cases in Nigeria. Improved
poliovirus surveillance and immediate immunization responses to new
cases are critical factors in bringing an end to the occurrence of the virus.

Tuberculosis According to the WHO 2010 World Health Statistics Report, the number of
incidences of TB fell marginally from 311 to 300 cases per 100,000 persons
between 2007 and 2008. Nigeria, a country of about 150.0 million people,
ranks amongst the top 5 of 22 countries with the highest incidences of TB
with some 100,000 recorded deaths annually. An analysis of the
distribution pattern of TB reveals a high level of concentration around
densely populated communities, with Lagos having the highest number of
recorded cases in the country. Major challenges to the reduction of the TB
burden include human resource constraints, poor coordination of various
efforts, ineffective resource management and existing significant funding
gaps.

Chart 7: Distribution of Causes of Death in Children < 5 years in Nigeria 2008

3%
1%
17%
19%
HIV/AIDS
Diarrhoea
2% Measles
Malaria
0%
6% Pneumonia
Prematurity
Birth asphyxia
8% Neonatal sepsis
20% Congenital abnormalities
Other diseases
Injuries
8%

16%

Source: WHO, Afrinvest Research

Healthcare/Pharmaceuticals Sector
4
Funding The National Health Policy emphasizes the importance of adequate health
care to social and economic development and acknowledges primary
healthcare as the foundation of Nigeria’s healthcare system. Over the last
few years, there has been an increase in government spending directed
towards providing new facilities mainly at the primary healthcare level.
However, most health facilities still lack modern medical equipment.
Healthcare facilities are often staffed by a few highly skilled – often
inadequately remunerated – professionals and endure frequent drug
scarcities resulting in the continued dependence on secondary and tertiary
health care institutions. In spite of the fact that government-funded
primary health care facilities constitute the vast majority of medical
facilities in Nigeria, the private sector still provides most of the secondary
healthcare services while most Nigerians continue to depend on out–of–
pocket expenditure for meeting their healthcare needs.

According to the WHO 2010 statistics report, the total expenditure on

health care as a percentage of GDP was 6.6% in 2007, up from 4.6% in
2000. Despite the country's profile as one of the world’s developing
economies, over a decade of sustained democratic governance and the
government’s economic reforms, the health care sector remains critically
underdeveloped and continues to suffer neglect, while other sectors such
as defence, oil and gas, Niger Delta and security have received better
government attention. In contrast, the governments of Ghana and South
Africa allocated over 10.0% of their total annual expenditure to their
healthcare sectors.

Healthcare/Pharmaceuticals Sector
5
 Chart 8: HY 2010 Budget Implementation Various Sectors

90
78.6
80

70

60

50 47.2
40.0
40 35.0
30.8
30 27.7

16.8 18.5
20
12.6
10 6.3
3.6
0
Power

Transport

Total Budget
Agriculture

Niger Delta

FCTA
Resources

Works

Police Affairs
Health

Education
Water

Average
Source: Federal Ministry Of Finance

There have been several attempts at reforming the health sector in Nigeria,
centered around developing institutional capacity and accessibility to
public health services. One of the more notable initiatives aimed at
addressing the issue of qualitative healthcare delivery was the creation of
the National Health Insurance Scheme (NHIS). The NHIS was signed into law
in May 1999 by the Obasanjo administration but actually took off in 2005.
It was aimed at complementing sources of financing for the health sector
and improving access to health care for the majority of Nigerians.

The NHIS was designed to mirror practices of health insurance schemes in

more developed countries such as the United States of America and the
United Kingdom. Its objectives upon inception were to:

• Ensure that all Nigerians have access to quality healthcare services and
protect families from colossal medical bills;
• Ensure impartial distribution of healthcare costs among different social
strata;
• Sustain a high standard of healthcare delivery;
• Ensure efficiency in healthcare services;
• Improve and harness private sector participation in the provision of
healthcare services;

Healthcare/Pharmaceuticals Sector
6
 • Ensure adequate distribution of health facilities within the Federation;
• Ensure the availability of funds to the health sector for improved
services.

Despite its noble intentions, limited progress has been made regarding the
adoption of the scheme which, for the most part, remains limited to public
sector employees. As most Nigerians still depend on out-of-pocket
spending for meeting their healthcare needs, there are concerns regarding
the government’s ability to manage such complex schemes, given its track
record on other similar public schemes, such as the National Housing Fund.
In retrospect, Afrinvest Research is of the opinion that the original goals of
the NHIS may have been somewhat ambitious, given the current state of
the country’s primary healthcare system. This is due to the lack of a
comprehensive approach to the formulation and implementation of
healthcare administration to aid the development rather than the
adoption of a system of primary health care.

Healthcare/Pharmaceuticals Sector
7
Nigeria’s Pharmaceuticals Sector
The pharmaceutical industry in Nigeria began in 1957 with the
establishment of the first pharmacy in Lagos. At the time, the
pharmaceuticals business primarily involved the distribution of drugs by
representatives of different multinational drug manufacturing companies
present in Nigeria such as Beecham, May & Baker, Pfizer and Glaxo. This
was followed by the establishment of manufacturing plants by some of
these multinationals who thereafter scaled up their operations following
the end of the Nigeria-Biafra civil war and the onset of the oil boom in the
early 1970’s. These companies were completely owned and controlled by
foreigners, with no indigenous participation. The indigenization policy of
1978 ushered in the next phase of development in the industry, forcing the
multinational companies into selling a minimum 60.0% equity stake to
Nigerians. This was followed by the establishment of indigenous
pharmaceutical manufacturing companies both by individuals and the
government. Between 1980 and 1982, there was an increase in the local
production of drugs from 5.0% to 20.0% of total demand, thereby
impacting economic growth positively and presenting many individuals
with investment opportunities.

The chronic dependence on importation of finished goods, following the

oil boom, had a catastrophic effect on the economy and ultimately the
pharmaceutical industry. The introduction of the notorious import licenses
(which covered drug imports) also impacted the industry negatively as
these licenses were not issued based on merit or technical competence. This
resulted in the sidelining of genuine manufacturers, importers and
pharmacists who then had to repurchase these licenses (often at a
premium). As a result, the Nigerian market was flooded with fake,
counterfeit and substandard drugs. During this period however, there was
an increase in the number of indigenous manufacturers though local
capacity for the production of the most basic of raw materials for
manufacturing pharmaceuticals remained grossly underdeveloped. In more
recent times, there has been a measure of respite in the industry due to;
the amendment of the Essential Drugs List (EDL) Decree, the abolition of
the import licensing system and Value Added Tax (VAT) on pharmaceutical
products, in addition to the reduction of tariffs on raw materials.
Furthermore, the unrelenting campaign by NAFDAC in the war against
counterfeit, fake and substandard drugs has greatly impacted the industry.

Healthcare/Pharmaceuticals Sector
8
Overview The sector can be classified based on product type, as well as by
manufacturer location (local manufacturers versus foreign importers).
Over-the-Counter (OTC) drugs are easier to manufacture and account for
larger volumes albeit, with thinner margins in a more competitive market
space. Ethicals on the other hand are, in most cases, products of years of
Research and Development (R&D) and are estimated to have only a 20.0%
market share of the Nigerian market but with much wider margins. Large
multinational corporations currently dominate the ethicals segment of the
market. Imported drugs however account for an estimated 65.0% of
market size. According to data from the Pharmaceuticals Manufacturers
Group of the Manufacturers Association of Nigeria (PMG-MAN), the local
market of pharmaceutical producers (accounting for an estimated 35.0% of
market size) is a highly fragmented one. The industry consists of 128
registered local pharmaceutical manufacturing companies, 292 registered
importers, 724 registered distributors, as well as a large number of
unregulated manufacturing, importing and distribution businesses. The
size of this unregulated market is difficult to accurately quantify as these
operators do not make returns to industry associations or regulatory
bodies.

The Nigerian pharmaceuticals sector has consistently been underutilized

(from a capacity perspective) over the past few decades as a result of
widespread counterfeiting, infrastructural challenges and corruption,
despite evident demand for effective drugs. In spite of the substantial
growth potential within the pharmaceutical and healthcare industry, the
elements of risk and uncertainty that currently subsist, limit international
interest/investment in the sector. The government has demonstrated its
willingness to make the country self-sufficient in terms of drug
production, by restricting imports through partial regulatory regimes and
tackling counterfeits.

There are 2 main layers in the production of pharmaceutical products in

Nigeria. These include (i. manufacturing and ii. packaging/repackaging) of
drugs, predominantly done by multi-nationals and a few indigenous drug
companies. These multinational organizations are also involved in the
wholesale distribution of pharmaceuticals, while the indigenous
wholesalers and retailers concentrate on sales to consumers. The retailers
mainly consist of pharmacies and patent medicine stores that dispense
both over-the-counter as well as prescription drugs, amongst others.

Healthcare/Pharmaceuticals Sector
9
Overview It is important to note that most of the companies in the
pharmaceuticals sector function primarily as importers, distributors or
retailers for international brands. By extension, Nigeria’s health services fall
under the control of Western countries (Britain, USA and France) as well as
some Asian countries (India, China and Indonesia). This could have serious
implications as economic and socio-political developments in these
countries could directly or indirectly impact prices, availability and
affordability of drugs for Nigerian consumers. The Nigerian pharmaceutical
industry is made up of 86 local manufacturers who collectively produce less
than 30.0% of Nigeria’s pharmaceutical needs. A major reason for the
underutilization of local pharmaceutical capacity is the increased
competition by imported products from countries such as China and India.

Access to essential medicines is fundamental to the realization of the

Millennium Development Goals (MDG’s). Despite government’s noble
intentions, poor availability, high cost and irrational use of essential
medicines continue to plague the pharmaceuticals sector. Efficient
provision of essential drugs depends on appropriate selection,
quantification, procurement, quality and storage, distribution, human
resources and information management.

Reports indicate an uncoordinated approach to the management of drugs

between various stakeholders, especially the government and aid
organizations. This has resulted in the poor management and procurement
of drugs by the Ministry of Health as it makes use of inadequate
procedures in the selection of drugs, despite the awareness of the national
Essential Drugs List (EDL). This lack of synergy between the government’s
procurement procedures and the efficient use of the EDL in meeting the
actual pharmaceutical needs of the country has led to the overstocking of
certain drugs. Bulk procurement of drugs without proper negotiation,
geared towards optimizing the benefits of economies of scale, has also led
to higher costs of drugs relative to other countries. Drugs are also procured
without having mapped out effective distribution plans, thus resulting in
the delivery of drugs with short shelf lives.

Healthcare/Pharmaceuticals Sector
10
Stunted Growth Nigeria’s pharmaceutical market is considered one of the smallest in the
Middle East and African region. It is dominated by a few large
organizations predominantly involved in the importation and distribution
of internationally recognized brands, production and distribution of
consumer goods and consumer health products. Most domestic
pharmaceutical companies and health care providers find it extremely
difficult to compete internationally which is evident in their generally low
levels of investment in research and development. Reasons for their
inability to compete include; inadequate government funding, low drug
expenditure, poor infrastructural development, insufficient facilities to
meet the demand for health care, the absence of an adequate regulatory
environment, insufficient foreign investment due to low confidence on
growth prospects, dearth of professional and technical competence in the
research and formulation of complex drugs. High levels of inequality
within the social system also play a part as low income earners are the
highest users of medical and pharmaceutical care. There is also a high level
competition from low-cost generic drug producers in the emerging Asia
markets and the prevalence of fake and counterfeit drugs especially in the
rural areas.

Opportunities The makeup of Nigeria’s disease burden should provide economic

opportunities within the market in the areas of Antiretroviral (ARV’s),
Artemisinin-based Combination Therapy (ACT) and vaccines in the
continuous battle against HIV/AIDS, Malaria, TB and Polio. However, the
current health profile of the country suggests a huge, though largely
unmet, demand for drugs and medical care. This in turn presents various
opportunities for the development of the market and individual producers
providing a large customer base. The federal government’s restructuring of
NAFDAC in view of its past successes has moderately improved
confidence in the sector’s reform. NAFDAC’s determined efforts at
reducing the prevalence of counterfeit and substandard drugs has
recorded some levels of success, with the agency being regarded as one of
the most effective and influential government agencies since Nigeria
returned to civilian rule. Government’s increased awareness and budgetary
allocations should have a positive effect on the industry, as it aims to
achieve its 4th and 5th Millennium Development Goals which are to reduce
child mortality rate among children and reduce maternal mortality rate by
75.0% by the year 2015.

Healthcare/Pharmaceuticals Sector
11
Unhealthy Competition
Sector Performance & Outlook
Healthcare/Pharmaceuticals Sector
Since its inception in 2002, Nigeria has been granted approximately
US$500.0 million by the Global Fund (a multilateral financing organization
for health with a focus on Malaria, HIV/AIDS and TB) and has recently
made a voluntarily contribution to the fund to the tune of US$10.0 million,
bringing its total contributions to US$30.0 million. The organization’s
Affordable Medicine Facility-malaria (AMFm) scheme aims to slash the
price of Artemesinin-based Combination Therapies (ACTs) by providing
large quantities of highly subsidized ACTs. This poses a considerable risk for
local manufacturers as none of the locally produced ACTs has been selected
to be part of this 2 year program in which up to 95.0% of the costs of these
drugs will be subsidized. The supposed local companies that have been
selected are actually multinational entities who have established
companies within the country. The absence of indigenously manufactured
ACTs on the list of accepted drugs underscores the inability of the domestic
pharmaceutical industry to compete internationally. The main reason
behind the non-inclusion of locally manufactured ACTs in the scheme is
down to their exclusion from the WHO list of pre-qualified drugs despite
the fact that some of these medications have been certified by the same
organization.
Afrinvest Research’s coverage of the pharmaceuticals industry is based on
production capacity, asset base and market capitalization of the listed
equities on the Nigerian Stock Exchange. In our view, the key listed players
in this market space are GlaxoSmithKline (GSK), May & Baker and Fidson
Healthcare (a fairly new addition to the listed healthcare companies). Most
companies within the sector achieved negative sales growth in 2009,
cascading down to dismal bottom line numbers with few exceptions (GSK
and Fidson). This is largely due to unsuccessful forays into the
consumer goods market and inadequate working capital management as a
result of funding gaps necessary for capacity upgrades in addition to the
difficult operating conditions. Overall, the sector’s growth has been limited
(Afrinvest Research estimates 2.6% in 2009), with a few players chasing the
expensive and difficult to attain WHO pre-qualification, putting pressure
on working capital positions.
Further analysis of the balance sheet of these companies reveals that
majority of the sector participants are considerably leveraged, with a large
dependence on short term funding without significant capital raising
activity throughout the year.
12
 An analysis of operating and valuation statistics remains less than
encouraging, reflecting our view on the state of the country’s healthcare
industry despite huge market opportunities. In comparison to 2009, the
sector performed considerably better on the NSE in 2010 appreciating by
19.1% in 2010 relative to 18.9% increase in the NSE All Share Index (NSE
ASI). This was largely due to the price appreciation movements in May &
Baker, Fidson and GSK by 52.3%, 71.9% and 16.1% respectively.

Chart 9: 2010 Performance of Healthcare Companies Chart 10: NSE ASI vs. Healthcare/Pharmaceutical Sector 2010

Neimeth-29.3 140.0 Rebased. Jan 04, 2010=100

Union Diagnostic -18.0

130.0
Morison -14.2
Pharma-Deko -13.9 120.0
Ekocorp -4.8
110.0
Evans 2.8
GSK 16.1 100.0
NSE ASI 18.9
Sector
Sector 90.0
19.1 NSE ASI
May & Baker 52.3
80.0
Jan-10

Feb-10

Mar-10

Apr-10

May-10

Jun-10

Jul-10

Aug-10

Sep-10

Oct-10

Nov-10

Dec-10
Fidson 71.9

-40.0 -20.0 0.0 20.0 40.0 60.0 80.0

Source: Afrinvest Research, NSE Source: Afrinvest Research, NSE

Healthcare/Pharmaceuticals Sector
13
 Table 1: Trading & Valuation Statistics Healthcare /Pharmaceuticals Sector, (Naira in MM, Except Where Noted)

Price TSO (MM) Market Cap EV EBITDA FYA EBITDA 1YF

Latest Audited
Company 31-Dec-10 Ordinary (Naira) (Naira) (Naira) (Naira)
Accounts

Fidson 30-Jun-09 3.06 1,500.0 4,800.0 4,985.4 937.2 1,003.8

GSK 31-Dec-09 26.00 956.7 24,874.3 22,724.9 2,984.7 3,810.4

Neimeth 31-Mar-10 1.06 821.6 870.9 1,010.9 (218.0) 305.2

May & Baker 31-Dec-09 4.20 980.0 4,116.0 4,194.2 643.4 660.9

Evans 31-Dec-08 1.10 486.5 535.1 1,432.4 113.5 363.6

Source: Afrinvest Research, NSE, Company Annual Accounts

Table 2: Trading & Valuation Statistics Healthcare /Pharmaceuticals Sector

EPS EV/Sales EV/EBITDA Price / Book Value P/E

Company FYA 1YR E FYA 1 YR F FYA 1 YR F FYA 1 YR F Trailing 1 YR F

Fidson 0.29 0.36 1.0x 0.9x 5.3x 5.0x 1.0x 0.9x 11.2x 8.8x

GSK 1.78 2.34 1.5x 1.3x 7.6x 6.0x 3.5x 2.9x 14.6x 11.1x

Neimeth (0.55) 0.19 0.5x 0.5x N/M 3.3x 0.9x 0.8x N/M 5.5x

May & Baker 0.33 0.71 0.9x 0.9x 6.5x 3.5x 1.6x 1.2x 12.7x 5.9x

Evans (1.05) (0.08) 0.3x 0.3x 12.6x 3.9x 1.7x 1.8x N/M N/M

Mean 1.0x 0.9x 6.5x 4.4x 1.7x 1.5x 12.8x 8.6x

Median 1.0x 0.9x 5.9x 4.2x 1.3x 1.1x 11.9x 7.4x

Source: Afrinvest Research, NSE, Company Annual Accounts

Healthcare/Pharmaceuticals Sector
14
 Fidson Healthcare Nigeria Plc
Company Data New Kid On The Block
Year Ended, June 30 2009 2010F Fidson Healthcare Plc commenced operations in 2002 and was listed on the Nigerian Stock
Exchange in June 2008. The company is parent to Fidson Products Limited (FPL), a wholly
Sales (N’m) 5,019.8 5,270.8
owned subsidiary and a conduit for the company’s diversification into the consumer goods
Profit After Tax (N’m) 429.1 486.2 market. FPL produces a handful of unique consumer goods such as absorbent materials,

Earnings per Share (Kobo) 0.29 0.32

tissues, diapers and hair removal cream. The company’s pharmaceutical product range
includes antibiotics, vitamin supplements, generics, ACT’s, ART’s antidepressants and
Dividend per Share (Kobo) 0.22 0.24
dermatological creams.
Sales Growth (%) 11.5 5.0

PAT Growth (%) 126.7 13.3 Just Above Par

In 2009, there was a decrease in the company’s bio-science and generics business lines, while
ROE (%) 1.9 2.0
receiving increased contributions from their specialties and general goods businesses. Fidson’s
Dividend Yield (%) 9.9 11.0 performance in 2009 was encouraging (given the difficult operating environment), growing
sales by 11.5% and increasing EBITDA by 6.9%. In 2009, EBITDA and EBIT margins were
consistent at 18.7% and 16.2% respectively, above the industry average. However, in its more
recently published Q3 March 2010 results, there was a reduction in sales (-1.4%) with a
marginal 1.3% growth in earnings. Margins remained consistent at 13.7% and 9.3% (pre and
Market Data
post tax), implying successful cost control measures, although we believe sales growth during
Price Range (Low/High) 1.86 - 3.70 the period was restricted due to ineffective marketing and distribution strategies.

Price Performance % (YTD) 71.9

Share Price (Dec 31, 2010) 3.06

We Remain Overweight on Fidson
The company’s share price performance was impressive last year (YTD 71.9% to 31st December
Shares Outstanding (m) 1,500.0
2010) owing to its more favorable trading liquidity than some sector peers. Based on a trailing
Market Cap (N’m) 4,590.0 and forward P/E of 10.1x and 9.1x and EV/EBITDA of 4.8x and 4.9x, we expect its share price to
settle around the N3.89 mark in twelve months, implying a 34.0% potential upside to its
Market Cap (US$’m) 30.6
current trading price. While we await its FY 2010 results, we are optimistic on Fidson, in light
Avg Daily Value (N’m) 3.9
of recent plans to setup the country’s first Biotech facility, supported by its own range of
Avg Daily Value (US$'m) 0.03 consumer healthcare brands, generics, anti-malarial prescriptions, ARV’s and Nigeria’s huge
healthcare demands.
Avg Daily Vol (N’m) 1.4

Chart 11: Fidson Healthcare Versus Sector and NSE (LTM Price Performance)

250.0 Adjusted Prices, Rebased. Jan 04, 2010=100

Valuations
EV/Sales (x) 0.9
200.0

EV/EBIT (x) 6.1 150.0

EV/EBITDA (x) 5.0 100.0

Sector
Working Capital/Sales (%) 36.4 50.0 NSE ASI
Fidson
Capex/EBITDA (%) 126.9 0.0
Jan-10

Feb-10

Mar-10

Apr-10

May-10

Jun-10

Jul-10

Aug-10

Sep-10

Oct-10

Nov-10

Dec-10

DCF Value (N) 2.41

Source: Afrinvest Research

Healthcare/Pharmaceuticals Sector
15
 GlaxoSmithKline Consumer Nigeria Plc
Company Data Leading the Pack..
GSK remains Nigeria’s largest manufacturer of consumer healthcare and pharmaceutical
Year Ended, June 30 2009 2010F products and has been operating in the country since 1972 prior to its listing on the NSE in

Sales (N’m) 14,952.4 17,174.9 1977. GSK is the result of a merger between SmithKline Beecham Limited and Glaxo Wellcome
in 2000. The company has a strong market presence and well established pharmaceutical and
Profit After Tax (N’m) 1,701.8 2,240.7
consumer healthcare brands such as Panadol, Ribena, lucozade, Macleans, Ampiclox, Amoxil
Earnings per Share (Kobo) 1.78 2.34 and Halfan.

Dividend per Share (Kobo) 0.75 1.05

..with Consistent Earnings Growth.
Sales Growth (%) 19.2 14.9
GSK’s performance in 2009 reaffirmed its position as the market leader, growing sales and
PAT Growth (%) 33.2 31.7 earnings (EBITDA) substantially (considering the tough economic conditions) by 19.2% and

ROE (%) 25.9 28.7

Dividend Yield (%)
Market Data
Price Range (Low/High)
29.7% respectively. Similarly, margins for the period under review also improved, as both EBIT
and EBITDA margins increased to 16.6% and 20.1% respectively from 14.8% and 18.3% in
2.63 3.70
2008. There has been consistent growth in top line to Q3 September 2010 as a result of
increased marketing and distribution efforts. The introduction of new products to its
consumer health and pharmaceutical portfolio has also helped in fortifying its brand strength
and consolidating its market share. The most recent quarterly earnings results for Q3 2010
show an improved performance in comparison to the equivalent period in 2009. Sales grew by
12.6% while profits increased marginally by 1.2%, although pre-tax margins declined from
20.85 - 31.50 21.0% to 18.9%.

Price Performance % (YTD) 16.1

Expected to Maintain Sector Dominance.
Share Price (Dec 31, 2010) 26.00 GSK trades at trailing P/E of 16.0 times and at a discount to our DCF value estimate of N29.89.

Shares Outstanding (m)
Market Cap (N’m)
Market Cap (US$’m)
Avg Daily Value (N’m)
Avg Daily Value (US$'m)
956.7 Based on a forward P/E of 11.6x and EV/EBITDA 6.4x, we estimate a 12 month price target of
N34.00, representing an 18.5% upside potential and maintain our BUY recommendation on
24,874.2
the stock. Going forward we believe GSK will continue to dominate the sector by taking
165.8 advantage of financial, technical, technological, scientific and professional assistance from
GSK worldwide. We are positive on the company’s future earnings potential and believe its
7.3
dividend payment will be sustained to FY 10.
0.05

Avg Daily Vol (N’m) 0.3

Chart 12: GSK Versus Sector and NSE (LTM Price Performance)

Adjusted Prices, Rebased. Jan 04, 2010=100

150.0
Valuations
140.0
EV/Sales (x) 1.5 130.0

EV/EBIT (x) 9.2 120.0

110.0
EV/EBITDA (x) 7.6
100.0 Sector
Working Capital/Sales (%) 17.8 NSE ASI
90.0
GSK
Capex/EBITDA (%) 47.2 80.0
Jan-10

Feb-10

Mar-10

Apr-10

May-10

Jun-10

Jul-10

Aug-10

Sep-10

Oct-10

Nov-10

Dec-10

DCF Value (N) 29.18

Source: Afrinvest Research

Healthcare/Pharmaceuticals Sector
16

Company Data
Year Ended, June 30
Sales (N’m) 4,604.5
Profit After Tax (N’m)
Earnings per Share (Kobo)*
Dividend per Share (Kobo)
May & Baker Nigeria Plc
First on the scene..
2009 2010F May & Baker is the oldest pharmaceutical manufacturer in Nigeria, founded in 1944 as a
trading outpost for May & Baker Limited UK. The company manufactures and distributes
4,696.5
pharmaceuticals and vaccines and consumer products. The company began an expansion
232.1 699.5 strategy which commenced with the development of its own branded products, followed by
the introduction of Lily table water and Mimee Noodles. This was supported by its acquisition
0.27 0.71
of 51.0% stake in Biovaccines Nigeria limited in partnership with the federal government.
- -

Sales Growth (%) -15.4 2.0

Wading Through Muddy Waters
PAT Growth (%) -44.5 201.4 Over the past 5 years, May & Baker has achieved a steady growth of 23.2% (CAGR). In 2009,
the company’s sales dropped by 15.0% as a result of negative contributions from its poor
ROE (%) 8.6 19.7
performing food lines and public sector operations. In addition, EBIT & EBITDA also decreased
Dividend Yield (%) - -
by 7.0% and 3.6% despite some improvement in margins. Further analysis raises concerns over
Adjusted EPS* the firms debt and working capital positions which have been exacerbated due to efforts to
complete construction of a WHO prequalified production plant, while attempting to revive its
agreement with the federal government over Biovaccines.

Market Data
Price Range (Low/High)
Price Performance (YTD, %)
Share Price (Dec 31, 2010)
Shares Outstanding (m)
Market Cap (N’m)
Market Cap (US$’m)
Cautious Optimism
2.76 - 6.94
Based on the company’s performance up to Q3 ‘10, we express concerns on the company’s
52.3 outlook as the it currently trades at a premium of 14.8% to our intrinsic valuation of N3.66.
We remain cautiously optimistic on the stock as we are skeptical of the added benefits of the
4.20
long awaited production facility and the reactivation of its agreement with the government
980.0 over Biovaccines. In the interim, we value May & Baker at a forward PE of 11.3x and an
EV/EBITDA of 6.5x translating to a target price of N4.52 thereby placing a NEUTRAL
4,116.0
recommendation on the stock. We note that management has disclosed plans to improve its
27.4
marketing and distribution efforts with incursions into new geographical locations and

Avg Daily Value (N’m) 3.8 markets as well as its interests in the Nutraceuticals and insecticide-treated mosquito net
market segment. We expect this to translate to enhanced earnings and market share in the
Avg Daily Value (US$ '000) 0.03
near term.
Avg Daily Vol (N’m) 0.6

Chart 13: May & Baker Versus Sector and NSE (LTM Price Performance)

300.0 Adjusted Prices, Rebased. Jan 04, 2010=100

Valuations
250.0
EV/Sales (x) 1.0
200.0
EV/EBIT (x) 9.8
150.0

EV/EBITDA (x) 6.9 100.0

Sector
Working Capital/Sales (%) 0.2 50.0 NSE ASI
MAY & BAKER
Capex/EBITDA (%) 2.2 0.0
Jan-10

Feb-10

Mar-10

Apr-10

May-10

Jun-10

Jul-10

Aug-10

Sep-10

Oct-10

Nov-10

Dec-10

DCF Value (N) 3.66

Source: Afrinvest Research

Healthcare/Pharmaceuticals Sector
17
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Victor Ndukauba Oladipo James
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+234 1 2701680 ext 314

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Insurance
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Healthcare/Pharmaceuticals Sector
18