Fast-growing company focused on niche generics

EQL Pharma is a fast-growing speciality pharma company that focuses on developing and marketing ‘niche generics’. These medicines, containing the same active ingredients as brandname drugs, are focused on areas with low prescription volumes, often concentrated in a few countries, thereby minimising competition.

Proven business model and growth strategy

EQL has achieved profitable growth over the past four years, with an EBIT margin of 16% in the latest fiscal year ending on 31 March 2023 (2022/23). Exceeding its four-year financial goal set in 2020/21, targeting 40% average sales growth in pharmaceutical sales by the end of 2024/25, EQL achieved growth rates of 41% in 2021/22 and 51% in 2022/23.

Clear path to growth over the short- to long term

Anticipating a surge in product launches over the next three years, we believe EQL, with the development of its pipeline and geographical expansion to continental Europe, is poised for strong growth in the short term and medium term. The introduction of branded generics Mellozzan and Memprex, targeting a SEK600m opportunity, further enhances prospects for sustained high growth beyond the medium term.

Sales CAGR of 39% in 2021/22–24/25e with expanding margin

We forecast pharmaceutical sales to grow by a CAGR of 39% in 2021/22–24/25e, just short of the company’s 40% target. With EQL leveraging a lean organisation and asset-light business model, we project increased scale advantages from 2024/25, boosting the EBIT margin from 16% in 2022/23 to 24% in 2025/26e and aligning with the EBITDA margin target of 25% in 2024/25e.

Fair value range of SEK39–57/share

We use a relative valuation methodology to value EQL. The lower end of our range aligns with the average multiple (16x EV/EBIT for 2024e) of fast-growing companies in the generics market, applied to our 2024/25e estimate adjusted for capitalised R&D. The upper end of our range rewards EQL for its unmatched growth profile and above-average margins, and implies a higher 20x EV/EBIT multiple for our 2024 estimate.

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