Broker snap: UBS downgrades Hikma to 'sell'

UBS has cut its recommendation for pharmaceuticals group Hikma from 'neutral' to 'sell', saying that the market is pricing in a 'blue sky scenario'.The broker said that it is hard to justify Hikma's valuation "as we believe that the market is pricing a blue sky scenario with the US Injectables supply issue continuing in 2013 and beyond, a strong EBIT [earnings before interest and tax] margin recovery in the Branded Generic division and a come back to 15-20% EBIT margin for the generic division."The likelihood of all of these happening appearing rather slim to us and setting Hikma up for disappointment."UBS said that the latest US injectables supply shortage updates from the FDA continue to flag "downside risk" for the second half of 2012 and first half of 2013 for two-thirds of Hikma's top-nine injectables products."Although the fact that these products are DEA-regulated should slow down the competition, the DEA is likely to increase quotas more quickly than in other situations because of the supply shortage, creating more downside risk than consensus assumes for Hikma."The broker has maintained its 755p target price for the shares.BC