Laboratorios Farmacéuticos ROVI - Top-line growth, significant margin expansion

Laboratorios Farmacéuticos ROVI reported H120 operating revenue of €191.1m (+8% y-o-y), driven by strong growth in heparins (+23% to €104.0m) and in toll manufacturing (+31% to €34.8m), which offset a decrease in sales of low-margin, mature specialty pharmaceuticals. EBITDA increased by 60% to €42.4m in H120, which reflects operational leverage plus a significant benefit from improved gross margin, and reduction in R&D and SG&A. For FY20, ROVI has maintained guidance of mid-single-digit growth in total operating revenues. Despite the overall strength of heparins and toll manufacturing revenues, the company remains prudent given the COVID-19 related uncertainties. During Q220 ROVI signed a collaboration agreement with US-based biotech Moderna to provide fill-finish manufacturing for Moderna’s COVID-19 vaccine candidate outside of the US, which could provide upside if successful depending on the undisclosed terms of the deal. The US NDA filing for DORIA remains on track for H220. We value ROVI at €1.64bn.