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Beximco Pharma – Bangladeshi Pharma at a special price : INVESTMENT

I got this idea from Mello Stock Slam. I really like it, bought a little less than 3% weight at 42.9 earlier in the week.

This is a generic pharmaceutical GDR listed in Bangladesh. There is a significant discount on that listed Bangladeshi co This is equivalent to a British equivalent of 74 pence – a 40% discount for the Bangladeshi company.

There were many overseas companies flying by at AIM. I don't think this is one of them. First, the industry is very sensitive and regulated – not the ideal place to do a scam. Second, the company was founded in 1974 – and has been for some time. This is one of the largest / most liquid companies in Bangladesh.

There is a decent dividend yield here – probably 4 to 5% according to my very rough estimates. Result for Q1 were significantly higher than in the previous year. I see that some quarters of the rising earnings are followed by rising earnings with a low P / E ratio – at least for the UK listed stock, a P / E ratio of 5/6 is likely. This is based on the fact that in Q2-4 they did what they did in Q1 without the result increasing further. Bangladesh has a law that requires 30% dividend income to be distributed. I think it varies from year to year. I actually think this is a very good thing – although others would discuss it. A regular dividend is a good indication that the company is real / not fraudulent, although I acknowledge that it is slightly suboptimal financially. There is some debt here, but a good book value.

The shares are not fungible with the Bangladeshi shares – apparently due to capital controls. It is hard for me to believe that by converting an AIM-DDR to Bangladesh you are effectively making money and not getting out. However, if you want to keep your money in Bangladesh, you have to get it out somehow. I haven't made any progress yet – and to be honest, I'll keep it quiet if I do. I also heard that the Bangladeshi authorities had to do something that they couldn't because of the political chaos. The stocks are completely equivalent to the Bangladeshi stocks, they are just a lot cheaper – it is a very positive thing that locals who know / understand a company value the stock higher than foreigners who probably do not know them well.

I am concerned that there are some large related party transactions. You just have to trust them – they're big, but not over the top. I am also concerned that they do not have a large auditor, but a review of their auditor revealed that there was nothing suspicious.

There is the possibility of a buyback / other corporate action Pay quite a bit of money to maintain the GDR listing. If we assume that it hasn't changed from what it was in 2010, it's around $ 1.8 million – that's a lot for a GDR worth £ 38 million. It is actually worse than that, because with the GDR trade so cheap money can not really be collected. I suspect that either the fungibility problem will be fixed sometime or that there will be another transaction to solve this problem.

Politics in Bangladesh is the main obstacle to this – it seems to me to be a kind of benevolent dictatorship. I suspect that if the dictatorship consolidates, it will stabilize, normal business will resume, and money will flow. The checking account is a somewhat negative but not excessive and GDP grew by 8% This should have a positive impact on demand.

These were covered by others – there is an attribution Here, Also a good one from Alpha Vulture Here and Here, Chap, who I saw at Mello, was concerned about debt / cash flow because of the somewhat forced dividend. I am not particularly worried about the recent strong results.

For me the trigger is that the profit estimates look wrong. In addition, sales growth now seems to be impacting earnings as well – I think this could be a turning point as the stock changes. Another local generic drug company Beacon Pharma – similar – but probably more innovative – is starting a 50 PE – against Beximco in the 10s-13s However, depending on where you think the earnings are, Beacon is far more volatile.

As always, comments / thoughts are welcome.

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