Fundamental Analysis of The Tunisian Pharmaceutical Industry ADWYA & UNIMED

Republic of Tunisia
University of Sousse
Ministry of Higher Education and Scientific Research
INSTITUTE OF HIGHER COMMERCIAL STUDIES OF SOUSSE

Master Thesis submitted in partial fulfillment of the requirements for
the degree of Professional Master in Financial Analysis
Subject:
A comparative fundamental analysis in the Tunisian pharmaceutical

industry, Case of the two listed companies on the Tunis Stock
Exchange: ADWYA and UNIMED
Candidate:
Younes Khalil
Academic Supervisor:
Mr. Riadh GHENIMA, PhD
Internship Supervisor:
Ms. Nejla Ben JEMIA, Financial Analyst
Ms. Marwa DAKHLAOUI, Financial Analyst
Academic Year: 2020-2021

Acknowledgements
Acknowledgements
This dissertation is the result of a risky two-year master's degree in financial analysis, which was
motivated by the belief that it’s never too late to pursue one's aspirations. Now that it's reaching
maturity, it's time to express my gratitude to those who have contributed with their fair share of
sacrifice to make it possible.
First, I would like to express my perpetual gratitude to my dear parents for their unconditional
love and sacrifices.
I extend my deepest recognition to my academic supervisor Mr. Riadh Ghenima for his precious
guidance, his valuable advices and his encouragement. I would like also to thank all the team of
Maxula Bourse for their warm welcoming and especially Ms. Nejla ben Jemia and Ms. Marwa
Dakhlaoui for their precious assistance during the internship.
I dedicate this report to my parents, my brother, my sisters, all my family members and all my
friends for their perpetual moral support and constant source of inspiration.
Abstract
ABSTRACT
The purpose of this dissertation is to evaluate the two major publicly traded companies operating
in the Tunisian pharmaceutical industry (ADWYA and UNIMED) by estimating their intrinsic
value. In other words, it aims to provide managers with recommendations in order to increase the
firm’s performance and to provide investors with recommendations in order to guide their
investment decisions on the considered stocks.
To do so, we performed a ratio analysis based on their historical data as well as a deep
fundamental valuation process of the concerned stocks using two approaches: absolute valuation
(DCF valuation) and relative valuation (comparable valuation). The DCF approach, relying on
company’s historical data and its policies to forecast data such as weighted average cost of
capital (WACC) and sustainable growth rate (SGR), includes two methods which are the
Dividend Discount Model (DDM) and Free Cash Flow to the Firm model (FCFF). The relative
approach, relying on other companies’ data operating in the same industry to get industry
multiples, values the concerned firm relative to its major competitors.
Based on ratio analysis and stock valuation, the research ended up with recommending to hold
and/or go long on ADWYA’s stock and go short on UNIMED’s stock.
Keywords: Intrinsic value, Ratio analysis, Fundamental valuation, DCF valuation, comparable
valuation, Dividend Discount Model, Free Cash Flow to the Firm model, WACC, Sustainable
growth rate, Multiples.
Summary
SUMMARY
Acknowledgements ............................................................................................................................. 2
General Introduction .................................................................................................................... 8
1. Chapter 1: Host Company’s context .................................................................................. 10
1.1. Tunisian capital market overview .................................................................................. 10
1.2. Tunisian brokerage activity overview ............................................................................ 11
1.3. Presentation of the host company................................................................................... 13
1.3.1 Company overview ....................................................................................................... 13
1.3.2 Company activities ....................................................................................................... 14
1.3.3 Financial Engineering Achievements ........................................................................... 15
1.3.4 Types of accounts and Tax benefits ............................................................................. 17
1.4. Internship description ..................................................................................................... 19
1.4.1 Internship Context ........................................................................................................ 19
1.4.2 Objectives of the Internship .......................................................................................... 19
1.4.3 Challenges and Obstacles ............................................................................................. 20
2. Chapter 2: Literature review.............................................................................................. 21
2.1. Ratio analysis ................................................................................................................. 21
2.1.1 Introduction .................................................................................................................. 21
2.1.2 Activity ratios ............................................................................................................... 21
2.1.3 Liquidity ratios ............................................................................................................. 22
2.1.4 Solvency ratios ............................................................................................................. 22
2.1.5 Profitability ratios ......................................................................................................... 23
2.1.6 Conclusion .................................................................................................................... 24
2.2. Valuation Methods ......................................................................................................... 24
2.2.1 Introduction .................................................................................................................. 24
2.2.2 Basic valuation concepts .............................................................................................. 25
2.2.3 Absolute Valuation methods ........................................................................................ 28
2.2.4 Relative valuation ......................................................................................................... 32
2.2.5 Conclusion .................................................................................................................... 33
3. Chapter 3: Methodology and empirical findings .............................................................. 34
Summary
3.1. Industry and company overview .................................................................................... 34

3.1.1 Industry overview ......................................................................................................... 34
3.1.2 Companies overview .................................................................................................... 36
3.2. Ratio analysis ................................................................................................................. 39
3.2.1 Activity ratios ............................................................................................................... 39
3.2.3 Solvency ratios ............................................................................................................. 42
3.3. Absolute Valuation ......................................................................................................... 47
3.3.1 Methodology ................................................................................................................. 47
3.3.2 WACC estimation......................................................................................................... 48
3.3.3 Growth rate estimation ................................................................................................. 50
3.3.4 DDM valuation ............................................................................................................. 52
3.3.5 FCFF valuation ............................................................................................................. 53
3.4. Relative valuation ........................................................................................................... 56
3.5. Conclusion...................................................................................................................... 57
General Conclusion..................................................................................................................... 60
References .................................................................................................................................... 61
List of figures
Figure 1: Organizational chart of the Tunisian capital market ..................................................... 11

Figure 2: Organizational chart of Maxula Bourse ........................................................................ 15
Figure 3: ADWYA’s operating revenue structure by destination ................................................ 37
Figure 4: UNIMED’s operating revenue structure by destination ................................................ 38
Figure 5: Gross profit margin evolution ....................................................................................... 43
Figure 6: Operating margin evolution........................................................................................... 44
Figure 7: Pretax margin evolution ................................................................................................ 45
Figure 8: Net profit margin evolution ........................................................................................... 45
Figure 9: Return on Assets (ROA) evolution ............................................................................... 46
Figure 10: Return on Equity (ROE) evolution .............................................................................. 47
List of tables
List of tables
Table 1: Fundraising operations carried out by Maxula Bourse ................................................... 16
Table 2: IPOs carried out by Maxula Bourse................................................................................ 16
Table 3: Advice and Assistance operations carried out by Maxula Bourse ................................. 16
Table 4: Commonly used activity ratios ....................................................................................... 22
Table 5: Commonly used liquidity ratios...................................................................................... 22
Table 6: Commonly used solvency ratios ..................................................................................... 23
Table 7: Commonly used profitability ratios ................................................................................ 23
Table 8: ADWYA’s Activity ratios .............................................................................................. 39
Table 9: UNIMED’s Activity ratios ............................................................................................. 40
Table 10: ADWYA’s liquidity ratios............................................................................................ 41
Table 11: UNIMED’s liquidity ratios ........................................................................................... 41
Table 12: ADWYA’s solvency ratios ........................................................................................... 42
Table 13: UNIMED’s solvency ratios .......................................................................................... 42
Table 14: Gross profit margin evolution ....................................................................................... 43
Table 15: Operating margin evolution .......................................................................................... 44
Table 16: Pretax margin evolution ................................................................................................ 44
Table 17: Net profit margin evolution .......................................................................................... 45
Table 18: Return on Assets (ROA) evolution ............................................................................... 46
Table 19: Return on Equity (ROE) evolution ............................................................................... 46
Table 20: Cost of equity estimation .............................................................................................. 49
Table 21: ADWYA’s Cost of debt estimation .............................................................................. 49
Table 22: UNIMED’s cost of debt estimation .............................................................................. 50
Table 23: WACC estimation ......................................................................................................... 50
Table 24: ADWYA’s growth rate estimation ............................................................................... 51
Table 25: UNIMED’s growth rate estimation .............................................................................. 51
Table 26: Dividend Discount Model (DDM) application for ADWYA ....................................... 52
Table 27: Dividend Discount Model (DDM) application for UNIMED ...................................... 53
Table 28: Fixed Capital Investment determination ....................................................................... 53
Table 29: Operating Working Capital Investment determination................................................. 54
Table 30: FCFF determination ...................................................................................................... 54
Table 31: FCFF model application for ADWYA ......................................................................... 55
Table 32: FCFF model application for UNIMED......................................................................... 55
Table 33: The multiples method application for ADWYA .......................................................... 56
Table 34: The multiples method application for UNIMED .......................................................... 57
Table 35: Valuation summary ....................................................................................................... 58
General introduction
General Introduction
The pharmaceutical industry is comprised of firms that manufacture and sell chemically and/or
biologically derived remedies to cure diseases or to improve a patient's health. This industry is
usually considered defensive and relatively immune to economic fluctuations, as consumers
often continue to purchase their drugs even during an economic recession.
Despite the fact that Tunisia's industrial sector was almost non-existent in 1950, preventing local
production from developing, the country built the necessary infrastructures and attempted to
develop the new technology sector, including the Sidi Thabet biotechnology and pharmaceutical
industry site.
The Tunisian stock market comprises three players from the pharmaceutical industry in its ranks,
each of which displays specific typologies illustrating the diversity of this industry. These
companies are: UNIMED, ADWYA and SIPHAT. SIPHAT is the single company with public
capital and the first pharmaceutical company trading at the Tunisian Stock Exchange since 2001.
The second company introducing to the Tunisian Stock exchange was ADWYA in 2007
followed by UNIMED in 2016.
The economic growth of the industry follows the world global progress in terms of wealth,
access to healthcare, ageing of the population and technical development leading to a better
knowledge of the human and animal bodies. Globally the industry is predicted to experience
significant and positive growth as major pharmaceutical companies are aiming to develop
various products to contain the spread of the COVID-19 disease. Also, governments tend to
implement flexible regulations regarding the local production of medicines and their exportation
as they provide it with lower health care costs than their importation along with considerable
revenues in foreign currency. That’s why nowadays the pharmaceutical industry is subject to
various studies and researches.
This thesis will undertake a comparative fundamental analysis in the Tunisian listed
pharmaceutical industry, excluding SIPHAT due to a lack of financial communications, in order
to decide whether these stocks are undervalued or overvalued and provide investors with
recommendations regarding the considered stocks after estimating their intrinsic value.
8
General introduction
To respond to this problematic, the project will be divided into three chapters as follows:
➢ In the first chapter, the internship host company will be introduced along with the
internship description and the Tunisian capital market presentation.
➢ Divided into two main parts, the second chapter will examine the literature review of the
subject. The first part will include the ratio analysis framework and the second part will
include the valuation framework.
➢ The third chapter will include the methodology followed in the elaboration of this study
as well as the empirical findings from the ratio analysis and application of valuation
methods.
9
Host company’s context
1. Chapter 1: Host Company’s context
Before moving to the presentation of the host company, it’s important to have an idea on the
Tunisian capital market as well as the Tunisian brokerage activity as they are basic concepts in
the host company’s context. Then, I’ll will describe the host company's activities, its financial
engineering achievements and its types of accounts along with tax benefits they provide to
investors, before moving to the internship description. The BVMT website1,2, the financial
market council (CMF) website3, Maxula Bourse website4 and documents provided by Maxula
Bourse will be used to gather information.
1.1. Tunisian capital market overview

The capital market is where firms can raise capital in general. Companies can raise money on the
capital market by issuing equity securities on the stock market or by issuing debt securities on
the bond market. Therefore, the capital market includes the stock market and the bond market
depending on the type of financial instrument being traded.
The Tunis Stock Exchange (BVMT), a private organization whose shareholders are brokers,
represents the Tunisian’s capital market. It is a security market where investors can buy and sell
a variety of financial instruments, the most well-known of which are equity and debt securities
issued by businesses, governments, and local authorities. This market role is to ensure the
liquidity of securities owned by investors. This liquidity permits issuers to collect funds from the
public to fund their expansion. As a result, the stock market is one of the economy's funding
sources. In fact, businesses obtain additional capital through conventional financing methods,
while individuals have access to tools that enable them to grow their savings by becoming
creditors through bonds or by becoming partners through shares.
It is important to mention that the capital or security market in Tunisia is equipped with a set of
institutions that work closely to ensure protection of investors in securities as well as companies
and provide clear, effective and efficient way of functioning. Currently, the Tunisian capital
market is equipped with a legislative and regulatory authority represented by the financial market
1
SOMMAIRE (bvmt.com.tn)
2
investors-guide.pdf (bvmt.com.tn)
3
Intervenants sur le marché financier (cmf.tn)
4
MaxulaBourse | Bien plus qu'un intermédiaire
10
council (CMF), a market governance body represented by the BVMT, Tunisia Clearing which is
responsible for the deposit, settlement, compensation and delivery of securities, brokers, banks,
companies and investors.
Figure 1: Organizational chart of the Tunisian capital market
Source: BVMT
1.2. Tunisian brokerage activity overview

Brokers are legal entities of Tunisian Nationality, authorized to act on the stock exchange where
they negotiate and record transactions relating to transferable securities. Their main mission is to
transmit their clients' stock market orders. Other than this main mission, stock market
intermediaries can engage in activities such as:
• Financial advice and canvassing

• Management of individual or collective portfolios
• The placement of securities
• The guarantee of successful completion of emissions
• Assistance to companies within the framework of initial public offerings.
11
Intermediation companies subject to approval have a monopoly on the trading of securities on

the stock exchange. Public limited companies wishing to exercise the activity of stock market
intermediation must:
➢ Have Tunisian nationality

➢ Have as its objective the trading and registration of securities and financial products on
the stock exchange
➢ Justify the existence of human and material resources necessary for the exercise of the
activity of stock market intermediation and the content of which is determined by a
general decision of the financial market council
➢ Have a minimum paid-up capital of; 1,000,000 TND, if the company requests approval
for the exercise of trading and registration activities on the stock exchange of securities
and financial products, financial advice, financial canvassing, portfolio management and
shares’ carrying. 3,000,000 TND, if the company requests approval, in addition to the
activities mentioned above, for the exercise of counterparty activities, market making,
performance guarantee or one of these activities.
In addition, the chairman or the CEO of a public limited company (PLC) of stock market
intermediation must enjoy his civic and political rights, have a master's degree in an economic or
financial field or an equivalent diploma and provide proof of at least five years professional
experience in the field of financial intermediation. Moreover, no stock market intermediary may
participate directly or indirectly in the capital of a stock market intermediary public limited
company for more than 30% of the capital. Indirect participation within this context is
considered to be the participation accruing to a subsidiary, the spouse and minor children.
The list of 23 brokers on the Tunis Stock Exchange include:
• AMEN-INVEST
• Arab-Financial Consultants
• BEST-INVEST
• BNA-Capitaux
• COFIB-CAPITAL FINANCES
• Compagnie Gestion et Finance
12
• Compagnie Général d'Investissement

• BIAT CAPITAL
• UIB Finance
• MAC.SA
• Maxula Bourse
• BH INVEST
• Société de Bourse de Tunisie
• Société de conseil et de l’intermédiation Financière
• STB Finance
• Mena Capital Partners
• Attijari Intermédiation
• Tunisie Valeurs
• Tuniso-Seoudienne d'Intermédiation
• UBCI-Bourse
• Union Financière
• FINACORP
• BMCE CAPITAL SECURITIES
They are represented collectively under a professional association called the Association of
Stock Market Intermediaries (AIB5).
1.3. Presentation of the host company
1.3.1 Company overview

Maxula Bourse is a public limited company with a capital of 1 million TND, 98% of which is
held by its current CEO, Raouf Aouadi. Founded in 1992, Maxula Bourse is one of the most
active brokers on the Tunisian stock market with 62,049 customers. Attached to its long tradition
of advising and supporting investors, Maxula Bourse has acquired over time the right skills as
well as the most appropriate administrative and technological tools to carry out its mission.
Maxula Bourse's main concern is to guarantee its clients a complete and personalized service that
meets their specific expectations in order to support them along their investment process.
5
Association des Intermédiaires en Bourse
13
1.3.2 Company activities

✓ Intermediation on the stock exchange:
Maxula Bourse offers an online security exchange service through its trading platform that takes
advantage of the latest technologies, allowing investors to follow the market live, to place their
orders instantly and to consult their accounts in real time with respect to the highest security
standards. Once the transaction has successfully completed, the investor pays a transaction fee
for the brokerage company's efforts to complete the trade.
✓ Research and Analysis:
The Research and Analysis department publishes value, market, economic and sectorial research
notes in order to guide their clients on investment opportunities. Aiming to increase their
customers awareness of stock market fluctuations, Maxula Bourse provides a skilled financial
analysts team that publishes daily, weekly and monthly research reports about the performance
of different stocks. They also assist firms to conduct their initial public offering (IPO) by making
the whole process of valuation and analysis.
✓ Asset Management
The Asset Management department distinguishes itself by offering instant services to each of its
clients, in line with their risk profiles. The manager should identify and analyze investors’ needs
and offer them the products and solutions that best meet their investment strategies.
In order to ensure an excellent quality of service, the Asset Management department has
introduced new technologies at both the asset allocation process and the back office, which allow
it to execute customer operations in real time, with all the necessary consistency and security.
14
Figure 2: Organizational chart of Maxula Bourse
1.3.3 Financial Engineering Achievements

Maxula Bourse expertise in financial engineering includes: Corporate Advice and Assistance,
Initial Public Offerings (IPOs), Mergers & Acquisitions, private equity, security valuation and
capital increase (fundraising) operations of listed companies.
15
Fundraising operations carried out by Maxula Bourse include:

Date of the fundraising operation Concerned Company
2014 and 2015 Assurances AMI
2016 Somocer
2016 Office Plast
Table 1: Fundraising operations carried out by Maxula Bourse
Source: “Maxula Bourse” website

IPOs carried out by Maxula Bourse include:
Date of the IPO Concerned Company
1997 Assurances STAR
2014 Assurances AMI
2015 Office Plast
2016 Sanimed
Table 2: IPOs carried out by Maxula Bourse
Advice and Assistance operations carried out by Maxula Bourse include:

Date of the Advice Nature of the operation Concerned
and Assistance Company
operation
2010 Company Valuation Tunisie Reassurance
2013 Merger by absorption of “Assurcrédit” COTUNACE
2014 Transformation of the legal form of the Assurances AMI
mutual company into a limited company
2015 Public Withdrawal Offer transaction Sofi Sicaf
Table 3: Advice and Assistance operations carried out by Maxula Bourse
16
1.3.4 Types of accounts and Tax benefits

This part will be a detailed description of the host company’s accounts along with the tax
benefits they provide to investors.
A. Types of accounts
• Free management account:
Free management is to decide for oneself which securities to be bought and sold, amounts to
incur, the timing and prices for purchase and sale transactions. The investor's decision is
formalized by purchase and sale orders passed to the broker. In this case stock brokers are
merely executors of the investor’s decisions. Free portfolio management requires a very good
knowledge on listed companies and economic conditions. That is why recommendations and
assistance of professionals, stock brokers and bankers are always recommended.
The free management account allows investors to freely invest their funds without a limit,
manage their own portfolio and dispose of their assets at any time. Their orders will be executed
in real time at the stock market level. The creation of a free management account with Maxula
Bourse gives investors access to several services:
- The execution of orders on the stock exchange.
- Real-time market access
- A Trading platform
- Keeping investor’s account.
- Consultation of Accounts and Statement Inquires
- Access to studies and analyzes.
• Mandated management account:
It consists of a delegation of the responsibility of portfolio management to a professional, a stock

broker. It also requires the signature of a management agreement specifying various terms;
namely the scope of the delegation, the remuneration and the frequency and content of
information on the evolution of the portfolio that the investor will receive. A personalized
portfolio takes advantage of the recommendations of experienced financial analysts who
17
constantly select the securities with the best prospects and will also take into account investors’
investment horizon. Thus, by opting for a mandated account, investors delegate the management
of their money and the tracking of their portfolio to a team of portfolio managers. These
Professionals will use their experience and skills to grow investors’ savings and optimize their
investments according to their investment horizon.
• Equity Savings Account-ESA (CEA6):
The Equity Savings Account is a long-term-focused investment on the stock market. Any
individual subject to the personal income tax (IRPP7), who holds a CEA, has a specific tax
benefit.
The sums deposited in the CEA are invested in shares listed companies at a minimum proportion
of 80%, the remainder being invested in Assimilable Treasury Bills (BTA8) or shares of
Undertakings for the Collective Investment in Transferable Securities-UCITS (OPCVM9):
SICAVs10 and mutual funds. These sums invested should remain into the account for a horizon
of five years from 1 January following the year of the CEA's opening.
The holder of the CEA is free to withdraw at any time the income generated by the account,
namely dividends, capital gains on sale of securities and interest on BTA. Also, he can manage
the account himself or delegate the management to Maxula Bourse.
B. Tax benefits:
• For free management account and mandated management account:
Capital gains on sale of listed shares (when they are sold after the expiry of the year following
the year of their acquisition) are tax-exempt. Else, the tax rate is 10% on capital gains (net of
capital losses). Dividends are exempt for corporate entities and subject to a 10% withholding tax
for individuals.
• For Equity Savings Account:
6
Compte Epargne en Actions
7
Impôt sur le revenu des personnes physiques
8
Bons de Trésor Assimilables
9
Organisme de placement collectif en valeurs mobilières
10
Société d'investissement à capital variable
18
Opening a CEA allows investors to deduct from their taxable income the amount invested in this
account with a limit of 100,000 Dinars per year and within the limit of the minimum tax.
In the case of employees, the tax gain will be directly charged on the salary as soon as a
certificate of payment is submitted. Professionals and merchants benefit from the tax relief on
the annual declaration of income. This translates into a decrease in withholding tax, resulting in
an improvement in net income.
1.4. Internship description

This section will be a detailed description of the internship context, the assigned tasks and the
department within which the internship is held and the challenges and obstacles encountered.
1.4.1 Internship Context

This internship is the concretization of the IHECSO- ISGS master degree in financial analysis
and its application in the professional environment. The host company's choice would have a
significant effect on my future career path. I chose Maxula Bourse, an advisory and brokerage
company, because I had a preference for financial analysis as a student. Every single transaction
for an advisory and brokerage company is heavily focused on financial analysis and research
output. My internship was conducted in the financial research and analysis department, which is
composed of two financial analysts. Essentially, their primary function is to collect historical
data and macroeconomic facts about publicly traded firms and analyze them in order to forecast
their potential results. Microsoft Excel is the most commonly used software to do so.
1.4.2 Objectives of the Internship

The general goal of this internship as a junior financial analyst intern was to interact with
experienced financial analysts and learn how to manage time, allowing me to translate theoretical
knowledge gained at the university into practice in a professional context.
I stationed in the Research and Analysis Department at Maxula Bourse during my internship.
During the first few days, I learned about the company's structure and the functions of each
department. Then I began working in the department to which I had been assigned and I
maintained close contact with my internship Supervisor, who assisted me in gaining a deeper
understanding of the job. As a first step, I investigated the Tunisian capital market to gain a
better understanding of the various entities' functions as well as the workflow and interactions
19
between them. Then, regular researches about listed companies were performed throughout the
length of the internship.
My internship has given me a better understanding of the role of brokerage firms in the process
of opening and managing investor accounts. I also had the opportunity to learn a lot about the
Tunisian stock exchange by creating a virtual portfolio with my internship supervisor and
performing day to day researches to determine which stocks to invest in.
1.4.3 Challenges and Obstacles

The most challenging aspect has been the language issue, as I have little financial experience in
French. In addition, the host organization does not have a formal training program or induction
procedure. Finally, the organization valuation topic itself is challenging, the more information
gathered the more accurate will be the forecast and analysis.
20
Literature review
2. Chapter 2: Literature review
2.1. Ratio analysis
2.1.1 Introduction
Ratios show how one quantity relates to another, usually expressed as a quotient. By examining
financial accounts such as the balance sheet and income statement, ratio analysis represents a
quantitative approach of acquiring insight into a company's operational efficiency, liquidity,
solvency and profitability. Analysts utilize data from financial statements to see if a company's
financial health is improving or deteriorating over time, as well as to make comparisons to other
companies sharing the same characteristics (competitors).
Understanding three key components of ratio analysis is critical. First and foremost, the
calculated ratio is not “the answer”. The ratio is an indicator of something about a company's
performance, it tells what happened but not why. Second, not all ratios are relevant to every
investigation. An analytical talent is the capacity to choose an appropriate ratio or ratios to
answer the research issue. Finally, ratio analysis, like financial analysis in general, does not end
with computation. In fact, the interpretation of the results is critical.
Financial ratios are classified into different categories based on the type of information they
provide about the firm. The following is an example of a classification scheme:
2.1.2 Activity ratios

Activity ratios (also known as operating efficiency ratios or asset utilization ratios) are used to
determine how efficiently a firm utilizes its various assets. Thus, they serve as indicators of the
operational performance of these assets. In most cases, the numerator includes information from
the income statement, while the denominator includes information from the balance sheet.
Because the income statement reflects what happened over a period, but the balance sheet only
indicates the state at the end of this period, average balance sheet information11 is typically
utilized for consistency (Van Horne and Wachowicz, 2008).
According to Robinson et al (2015), the most frequently used activity ratios are:
11
Averages are computed by summing the beginning-of-year account value to the end-of-year account value, then
dividing this sum by two.
21
Literature review
Activity ratio Numerator Denominator

Inventory turnover Cost Of Goods Sold-COGS Average inventory
Days of inventory on hand (DOH) 365 Inventory turnover
Receivables turnover Sales Average receivables
Days of sales outstanding (DSO) 365 Receivables turnover
Payables turnover Purchases12 Average payables
Days of payables outstanding (DPO) 365 Payables turnover
Working capital turnover Sales Average Working capital13
Fixed asset turnover Sales Average Fixed asset
Total asset turnover Sales Average Total asset
Table 4: Commonly used activity ratios
2.1.3 Liquidity ratios

Analysts use liquidity ratios to determine the company’s ability to meet its short-term or current
obligations using short-term or current available ressources. In fact, they express the relationship
between the company’s current assets and its current liabilities (Van Horne and Wachowicz,
2008)., the most frequently used liquidity ratios According to Robinson et al (2015) are:
Liquidity ratio Numerator Denominator
Current ratio Current assets Current liabilities
Quick ratio Current assets - Inventory Current liabilities
Cash ratio Current assest - Inventory - receivables Current liabilities
Cash conversion cycle DOH+DSO-DPO
Table 5: Commonly used liquidity ratios
2.1.4 Solvency ratios

Analysts use solvency ratios to determine the company’s ability to meet its long-term obligations
(Robinson et al, 2015). The most frequently used solvency ratios are:
12
Purchases = cost of goods sold + (ending inventory - beginning inventory)
13
Working capital = current assets - current liabilities.
22
Literature review
Solvency ratio Numerator Denominator
Debt to assets Total debt14 Total assets
Debt to capital Total debt Total capital15
Debt to equity Total debt Total shareholders’ equity
Financial leverage Average total assets Average total equity
Interest coverage EBIT Interest payments
Table 6: Commonly used solvency ratios
2.1.5 Profitability ratios

According to Robinson et al (2015), profitability ratios measure the company’s ability to
generate profits and they indicate the general performance of the firm relative to its revenues.
The most frequently used profitability ratios are:
Solvency ratio Numerator Denominator
Gross margin Gross profit Revenue
Operating margin Earnings Before Interest and Taxes-EBIT Revenue
Pretax margin Earnings Before Taxes-EBT Revenue
Net profit margin Net income Revenue
Return on assets16 Net income Average total assets
Return on equity17 Net income – preferred dividends Average common equity
Table 7: Commonly used profitability ratios
14
Short-term and long-term debt
15
Total debt and total shareholder’ equity
16
Return on assets (ROA) refers to the profit a company makes on its total assets. The higher the ratio, the more
revenue a particular level of assets generates.
17
Return on equity (ROE) refers to the profit a company makes on its total shareholders’ equity. The higher the
ratio, the more revenue a particular level of shareholder’s equity generates.
23
Literature review
2.1.6 Conclusion
There’s different categories of financial ratios. Every category aims to evaluate a company’s
issue over time or compared to its major competitors. Activity ratios aim to analyse the
company’s operational performance, liquidity ratios aim to analyse the company’s short-term
solvency, solvency ratios aim to analyse the company’s long-term solvency and finally
profitability ratios aim to analyse the company’s ability to generate revenues.
2.2. Valuation Methods
2.2.1 Introduction
Valuations are important because they serve as the foundation for decisions involving large sums
of money or capital being transferred from one group to another.
People conduct valuations in order to buy or sell a publicly traded company's stock, decide
whether to pursue strategic and significant investment opportunities and eventually to get a
fairness opinion in the purchase or selling of a company’s stock. Unfortunately, there isn't a
single valuation that works in every case because each stock is special, necessitating the use of
various valuation approaches.
This leads to two major categories of valuation approaches:
▪ Absolute Valuation:
The value of any asset is estimated based on its cash flows, its growth potential and its risk. We
determine intrinsic value as the present value of the asset's predicted cash flows, discounted back
at a rate that reflects the cash flows' riskiness, using the discounted cash flow (DCF) method in
its most common form.
▪ Relative Valuation:
In reality, most assets are priced relative to one another. Relative valuation determines the value
of an asset by examining how comparable assets are priced in the market. As a result, rather than
doing an intrinsic valuation, looking at what comparable assets in the area sell for when deciding
how much to pay for a particular asset. In fact, the term ‘comparable' typically refers to other
firms in the same industry as the one being valued.
24
Literature review
2.2.2 Basic valuation concepts
A. Weighted Average Cost of capital: WACC

We have debt, preferred stock, and common equity on the right (liability) side of a company's
balance sheet. These are usually referred to as the company’s capital resources. Any rise in a
company's total assets must be funded by a rise in at least one of these capital accounts. The cost
of capital is the weighted average cost of each of these capital resources.
According to Pinto et al (2010), the weighted average cost of capital (WACC) calculates the
return on each component and then ‘weights' it properly based on the percentage used for
financing. The weights must add up to one, and decimals are the easiest to work with. In other
terms, the equation is as follows:
WACC = (Wd) [Kd (1 – T)] + (Wps)(Kps) + (Wce)(Kce) (equation 1)
If there’s no preferred stock:
WACC = (Wd) [Kd (1 – T)] + (Wce)(Kce) (equation 2)
Where:
Wd is the weight of outstanding debt
Wps is the weight of outstanding preferred stock
Wce is the weight of outstanding common equity
Kd is the effective interest rate (before tax)
Kps is the cost of preferred stock
Kce is the cost of common equity
T is the corporate tax rate
B. Cost of equity
According to Pinto et al (2010), the cost of equity represents the expected return by shareholders
and it can be computed using the capital asset pricing model (CAPM). Using beta, the Capital
Asset Pricing Model (CAPM) creates a connection between the projected return on a specific
stock and its non-diversifiable (systematic) risk. In other terms, the equation is as follows:
25
Literature review
E(ri) = Kce = rf + βi [E(rm) – rf] (equation 3)
Where:
E(ri) is the expected required return on equity of the stock (cost of equity)
E(rm) is the expected return on the market portfolio (TUNINDEX for example)
rf is the risk-free interest rate.
The term (E(rm) – rf) is called the market risk premium.
The term βi [E(rm) – rf] is called the equity risk premium.
βi is the beta coefficient of the stock. It represents the systematic risk and measures the volatility
of the stock’s returns relative to the market’s returns. It can be computed following this formula:
Covariance (stock return, market return)

βi = (equation 4)
Variance (market return)
Moreover, the slope term in a basic linear regression function where the rate of return on a
market index is the independent variable and the rate of return on a stock is the dependent
variable can be used to calculate the beta coefficient (Alexander and Chervany, 1980).
C. Cost of debt:
The cost of debt is the interest rate that a business pays on its debts (bonds and loans). The cost
of debt refers also to the company's cost of debt before taxes or the effective interest rate. The
disparity between the cost of debt before and after taxation is due to the fact that interest
payments are tax deductible.
A business must decide the total amount of interest it pays on each of its debt for the year in
order to measure the cost of debt. Then it divides the amount by the total amount of outstanding
debt it owes. The cost of debt before taxes is the consequence18.
Total annual interest payments

Effective interest rate (before tax) = (equation 5)
total annual outstanding debt
18
https://www.investopedia.com/terms/c/costofdebt.asp
26
Literature review
Because interest payments on the outstanding debt are tax deductible, the interest expense paid
on that debt lowers the company's overall tax liability, reducing the cost of debt. That’s why, we
subtract the tax liability from the true cost of debt:
After Tax cost of debt = effective interest rate × (1 − tax rate) (equation 6)
D. Sustainable Growth rate:

Sustainable growth rate (SGR or gS) is the growth rate of earnings or dividends that the firm can
sustain for a given level of return on equity assuming a constant capital structure (constant debt
to equity ratio) over time (Pinto et al, 2010). So, it’s the “maximum” rate of growth that a
company can sustain without having to finance this growth with additional equity or debt19.
The earnings retention ratio and the return on equity are combined to form the SGR:
D
g S = (1 − ) × ROE (equation 7)
EPS
Where:
gS is the sustainable growth rate
D is dividend per share
EPS is earnings per share
The term (1 – D/EPS) is called the retention rate
ROE is the return on equity
E. Terminal Value:
According to Pinto et al (2010), The value of an asset, company or project beyond the forecasted
horizon when future cash flows can be calculated is known as terminal value (TV). The term
"terminal value" (also known as continuing value) refers to the assumption that a company will
continue to expand at a stable rate after the prediction period has ended.
19
https://www.investopedia.com/terms/s/sustainablegrowthrate.asp
27
Literature review
The present value of the terminal value also accounts for a significant portion of the overall
assessed value (Heller, 2021).
FCFn × (1 + g n )
TVn = (equation 8)
(d − g n )
Where:
FCFn is the future cash flow for the last forecast period
gn is the terminal or long-term growth rate
d is the appropriate discount rate
2.2.3 Absolute Valuation methods

In equity valuation framework, there are two main definitions of future cash flows: dividends or
free cash flow. Asset’s value is a function of its forecasted cash flows. We measure the worth of
an asset as the present value of the estimated cash flows on it in the discounted cash flow
valuation.
This report will focus on two absolute valuation methods which are Dividend Discount Model
and Free Cash Flow to the Firm model.
A. Dividend Discount Model

Cash flow is defined by dividend discount models (DDMs) as the dividends to be earned by
shareholders. The stockholder will be rewarded for his investment in the form of dividends in the
future.
Dividends are less volatile than other measures of cash flow, so value forecasts derived from
dividend discount models are less volatile and represent the company’s long-term earning
potential. Dividends as a cash flow measurement have a range of disadvantages, the most
important of which is that they are difficult to enforce for businesses that do not currently
distribute dividends. However, by predicting the point in the future when the company is
supposed to start paying dividends, it is possible to predict expected future dividends. The
uncertainty associated with predicting too far into the future the fundamental variables that affect
28
Literature review
stock price (earnings, dividend payout rate, growth rate and required rate of return) is another
problem with this method in practice (Pinto et al, 2010).
▪ GGM model (single-stage or constant-growth dividend discount model):
According to Fuller and Hsia (1984), the Gordon growth model (GGM) assumes that dividends
will indefinitely rise at the same rate. The constant growth assumption simplifies things by
allowing the prediction of future dividends easier, leading to the simple formula:
D0 × (1 + g S ) D1
V0 = = (equation 9)
(r − g S ) (r − g S )
Where:
V0 is the fundamental or intrinsic value
D0 is the actual dividend
D1 is the expected dividend to be received at the end of the year
r is the expected required rate of return on equity
gS is the expected continuous constant dividend growth rate
According to Pinto et al (2010), The GGM model assumes that:
- In one year, the company expects to pay a dividend, D1.

- Dividends rise at a continuous constant rate, g, forever.
- The required return, r, is less than the growth rate, gS.
However, the weak point with the Gordon growth model is that growth rates do not remain
constant. In fact, many stocks' growth rates fluctuate so much that this constant growth model
don’t even provide a good approximation (Fuller and Hsia, 1984)
▪ Two-Stage DDM model:
The Gordon growth model’s expectation of continuous constant dividend growth into perpetuity
is impractical for most businesses. That’s why investors usually use multistage dividend discount
models. The simplest multistage model is the two-stage DDM. According to this model, we
29
Literature review
believe that the business grows rapidly for a short period of time, the first stage, before reverting
to a long-run perpetual growth rate, the second stage (Pinto et al, 2010).
n
D0 (1 + g S )t TVn
V0 = ∑ [ t
]+[ ] (equation 10)
(1 + r) (1 + r)n
t=1
Where:
gS is short-term growth rate
n represents the length of the high-growth period
B. Free cash flow to the firm model:

After all operational expenses (including taxes) have been paid and necessary working capital
investments (WCINV) and fixed capital investments (FCINV) have been made, free cash flow to
the firm is the cash flow available to the company's capital suppliers including stockholders and
debtholders (Pinto et al, 2010).
Free cash flow to the company (FCFF) is determined as follows:
FCFF = EBIT(1-T) + Depreciation and amortization – FCINV – WCINV (equation 11)
According to Pinto et al (2010), the difference between capital expenses (long-term fixed asset
investments), known as CAPEX, and the proceeds from the sale of long-term assets is the
amount invested in fixed capital. The firm’s statement of cash flows is likely to include all
capital expenses and proceeds from long-term asset sales (if any).
According to Pinto et al (2010), the investment in net working capital is equal to the change in
working capital, excluding cash, cash equivalents and short-term debt for valuation purposes. It
can be computed from the balance Sheet statement.
▪ Single-Stage FCFF Model:
The Gordon growth model, which was discussed previously with dividend valuation models, is
similar to the single-stage FCFF model. According to the model, FCFF increases at a constant
growth rate (gS) indefinitely and the growth rate is less than the weighted average cost of capital
(WACC). It’s the Gordon growth model, but with FCFF replacing dividends and WACC
replacing required return on equity (Pinto et al, 2010).
30
Literature review
FCFF0 × (1 + g S ) FCFF1
Firm Value = = (equation 12)
WACC − g S WACC − g S
Where:
FCFF0 is the starting level of FCFF
FCFF1 is the expected free cash flow to the firm at the end of the year
WACC is Weighted Average Cost of Capital
gS is the constant expected growth rate of FCFF
▪ Two-Stage FCFF Model:
The assumptions for the two-stage free cash flow models are simply the predictions we create
regarding free cash flow growth trends. For a company with two phases of development, we’d
use a two-stage model: a short-term supernormal growth phase and a long-term stable growth
phase (Pinto et al, 2010).
n
FCFF0 (1 + g S )t TVn
Firm Value = ∑ [ ] + [ ] (equation 13)
(1 + WACC)t (1 + WACC)n
t=1
Where:
n represents the length of the high growth phase
gS is the short-term growth rate
Finally, we can determine equity value by simply subtracting the market value of the net debt
from the firm value (enterprise value):
Equity value = firm value – net debt (equation 14)
with:
Net debt = total outstanding debt – cash & cash equivalents and marketable securities (eq 15)
31
Literature review
2.2.4 Relative valuation

Multiples are Equity valuation tools. According to Suozzo et al (2001), the most famous and
widely used multiples are price (equity) and enterprise value multiples.
Price multiples outline in a single number the relationship between the stock price of the
company and some fundamental quantity per share, such as earnings, sales or book value. In
contrast enterprise value multiples outline in a single number the relationship between the entire
market value of the company (enterprise value) and some fundamental quantity such as EBIT
and EBITDA (Pinto et al, 2010).
According to Lie and Lie (2002), Valuation by multiples is a common practice among
investment bankers and appraisers as a supplement to the absolute valuation approach.
The technique of comparable evaluates a company based on the average price multiple of similar
companies' stocks (Damodaran, 2002).
The Law of One Price, which states that two similar assets should sell at comparable price
multiples, is the rationale for using this technique. Because this is a relative valuation method,
we can only say if a stock is overvalued or undervalued in comparison to its benchmark.
According to this method, multiplying the benchmark price multiple by the company’s
fundamental quantity per share provides investors with a relevant estimate of the company’s
stock price and multiplying the benchmark enterprise multiple by the company’s fundamental
quantity provides investors with a relevant estimate of the company’s entire market value (Pinto
et al, 2010).
▪ According to DRĂPGOI et al (2016), most widely used price multiples include:
P/E ratio = share price / Earnings per share (eq 16)
P/BV ratio = share price / Book Value per share (eq 17)
P/S ratio = share price / Sales per share (eq 18)
32
Literature review
▪ According to DRĂPGOI et al (2016), most widely used enterprise value multiples

include:
EV/EBIT = Entreprise Value / Earnings before Interest and Taxes (eq 19)
EV/EBITDA = EV / Earnings before Interest, Taxes, Depreciation and Amortization (eq 20)
2.2.5 Conclusion
In conclusion, valuation methods aim to value businesses which is the primary task of every
financial analyst. That’s why, various valuation concepts are presented in this chapter along with
various valuation approaches that those financial analysts undertake to value stocks and make
investment recommendations.
Despite the fact that there’s little previous research regarding the ratio analysis and the valuation
of the two concerned companies, their valuation is considered very important as they belong to a
trend industry nowadays. That’s why we will focus on their ratio analysis and fundamental
valuation in the next part of the thesis.
33
Methodology and empirical findings
3. Chapter 3: Methodology and empirical findings
3.1. Industry and company overview
3.1.1 Industry overview

The Tunisian stock market comprises three publicly-traded pharmaceutical firms in its ranks.
Each company displays specific typologies, illustrating the diversity of this industry. These
companies are: ADWYA, UNIMED and SIPHAT.
▪ Health care conditions in Tunisia20:
Thanks to the continuing development of the pharmaceutical industry, the infant mortality rate
decreased from 20% in 1956 to 1.78% in 2009. Because of the decrease in infant mortality, life
expectancy at birth increased from 37 years in the late 1940s to 52 years in the late 1960s and
finally to 74.5 years in 2009 (72.5 for men and 76.5 for women). A multifactorial
epidemiological transition accompanied the demographic transition, including sanitary, legal,
economic, and cultural changes. Tunisia’s epidemiological profile includes:
• a significant reduction, if not elimination, of “traditional” communicable diseases (malaria,

bilharziasis, trachoma, tuberculosis, infectious diarrhoea), as well as childhood diseases
(poliomyelitis, tetanus, neonatal, diphtheria).
• an increase in road accidents with significant consequences in terms of mortality and morbidity.
• the emergence of chronic and degenerative non-communicable diseases with a multifactorial

etiology and high medical costs.
▪ Overview of the drug industry in Tunisia:
According to Oxford Business Group21, as a result of rising local demand for medications,
increasing export markets and the installation of a favorable business environment, the Tunisian
pharmaceutical sector has experienced constant double-digit growth of between 10% and 15%
each year over the last decade. According to the World Health Organization, the Tunisian
20
RAPPORT MEDICA V3.indd (ipemed.coop)
21
Tunisian pharmaceutical industry is looking to export more | Tunisia 2016 | Oxford Business Group
34
pharmaceutical sector earned $745 million in 2015 with a local private drug manufacturing
providing 60% of the domestic market's demand in terms of volume and 47% in terms of value.
Tunisia has 39 drug manufacturing enterprises in 2016, most of which work as joint ventures
with multinational businesses to produce human medications, as well as veterinary
pharmaceuticals, medical devices, and raw materials. Aswya is the largest local medicine maker
with a $50 million annual revenue and a 7% market share, followed by Unimed, Sanofi Tunisie,
Teriak, and Opalia, which together account for 15% of local output and 7% of market share.
Following the privatization of the sector in the 1990s and the implementation of beneficial fiscal
incentives, such as exemption from import taxes, tax reductions and improved conditions for
public bids, the majority of these firms were created by local professionals. In terms of medicine
imports, Tunisia's Central Pharmacy oversees a system of centralized buying that was put in
place in 1961.
According to Selim Bouzguenda22, treasurer of the syndical Chamber of Pharmaceutical

Manufacturers, the market weight of the drug industry in Tunisia is estimated at 2.7 million TND
in 2020 versus 2.3 million TND in 2017 growing at a compounded annual growth rate of 5.5%.
this weight is distributed unfairly between public and private sectors respectively at a proportion
of 26% in the public sector (700 million TND in 2020) and 74% in the private sector (2,000
million TND in 2020).
Imports of the PCT, a monopoly for the export of drugs in Tunisia, is estimated at 42% in 2020,
against local production of around 52% during the same year. Since 2014 the pharmaceutical
industry has been exporting 10% of what it had been manufacturing, and in 2017 it hit 17%, but
it’s back to 16% in 2020 due to the covid-19 pandemic. Thus, the level of exportations in relation
to the level of production is what highlights the importance of the industry as a strategic one. In
the same context, the second country to which exports are destined after France is Libya and the
only obstacle encountered is the closing of the borders or the political problems that arise each
time. Other than that, the usual value of exportations to this country was in the order of 50
million dinars, dropping to 35 million dinars per year, due to the Covid crisis.
22
https://www.fedsante.com.tn/2021/03/selim-bouzguenda-nous-visons-a-produire-72-des-medicaments-en-tunisie-
dici-2025/
35
3.1.2 Companies overview
A. ADWYA:
The company “ADWYA” is a public limited company of Tunisian nationality, listed on the
Tunisian stock exchange and governed by Tunisian law. Its capital at 31 December 2020 is
21.528.000 TND divided into 21.528.000 common shares of nominal value of 1 TND each. Its
head office is located in the Marsa – Tunis – Marsa road. Founded in June 1983 by the El Matri
family, ADWYA operates in the production and exploitation of pharmaceutical products for
human and veterinary use and is today one of the major players in the pharmaceutical industry in
Tunisia. The company began operations in 1989. It offers generic drugs for the following areas:
cardiology, gastroenterology, respiratory diseases, infectious diseases, metabolism and nutrition.
The company’s IPO was completed in 2007. ADWYA is one of the oldest companies established
in Tunisia and has a great experience in the pharmaceutical industry and a considerable know-
how acquired through its collaboration with renowned pharmaceutical laboratories with which it
has signed licensing agreements23.
ADWYA’s products are grouped into two main families:
➢ Generic products: This concerns the production and marketing of medicines under
ADWYA's own brand. This activity has promising development prospects as several
products are currently under registration or development. This range includes around
twenty products under more than forty presentations in 7 different therapeutic domains
(analgia, cardiology, endocrinology, gastroenterology, infectiology, central nervous
system, urology).
➢ Licensed products: These are drugs manufactured on behalf of third-party laboratories
which give the order. This activity denotes the confidence placed by various partners in
the company, its know-how and its competence. In fact, UNIMED has concluded
contracts with more than 30 international pharmaceutical partners as: GlaxoSmithkline,
Sanofi-Aventis, Bouchara-Recordati, Merck Lipha, Astra Zeneca, Pierre Fabre, Abbott
and Solvay.
23
41 (finacorp.net)
36
ADWYA's operating revenue structure by destination

99% 99% 99% 98% 97%
1% 1% 1% 2% 3%
2016 2017 2018 2019 2020
Total Local Revnue Total Export Revenue
Figure 3: ADWYA’s operating revenue structure by destination
Data source: BVMT

From figure 3, we can notice that ADWYA’s operating revenue structure is stable over time and
that the company’s revenue comes essentially from the local market against a very shy export
revenue.
B. UNIMED:
The company "UNIMED" is a public limited company of Tunisian nationality, listed on the
Tunisian stock exchange and governed by Tunisian law. Its capital at 31 December 2020 is
32.000.000 TND divided into 32.000.000 common shares of nominal value of 1 TND each. Its
head office is located in the Kalaa Kebira – Sousse - industrial area. UNIMED Laboratories were
founded in 1989 by its current CEO Mr. Ridha Charfeddine. It operates in the pharmaceutical
industry in the healthcare sector and specializes more particularly in sterile products: injectable
preparations and eye drops intended for ophthalmic application. UNIMED is one of the few
laboratories to produce this type of drug in Tunisia as it has acquired a significant technological
advance compared to the competition. In the range of sterile products (injectables and eye drops),
UNIMED holds a dominant market share and ranks first in its segment followed by MEDIS
laboratories. In December 2015, the company had 307 MA (Marketing Authorization): 186 MA
37
on the local market and 121 on foreign markets (Algeria, Yemen, Ivory Coast, Iraq, Burkina
Faso, Congo, Senegal, Saudi Arabia, Kuwait, United Arab Emirates, Niger, Lebanon)24.
The UNIMED Laboratories develop a production activity of medicines for human use according
to two main axes:
➢ Generic drugs: This concerns the production and marketing of medicines under
UNIMED's own brand. This activity has promising development prospects as several
drugs are currently under registration or development. This range includes around twenty
products in more than forty presentations divided into different therapeutic families.
➢ Licensed drugs: These are drugs manufactured on behalf of third-party laboratories which
give the order. This activity denotes the confidence placed by various partners in the
company, its know-how and its competence. In fact, UNIMED has concluded contracts
on behalf of local and foreign laboratories such as: Adwya, Teriak, Pfizer, Mylan, Pierre
Fabre and Biogaran.
UNIMED's operating revenue structure by destination
67%
63% 63%
57%
55%
45%
43%
37% 37%
33%
2016 2017 2018 2019 2020

Total Local Revnue Total Export Revenue
Figure 4: UNIMED’s operating revenue structure by destination
Data source: BVMT

From figure 4, we can notice that UNIMED’s operating revenue structure contains a
considerable percentage of export revenue that has deteriorated considerably during 2020,
mainly due to the covid-19 pandemic.
24
TSI_UNIMED.pdf (tustex.com)
38
3.2. Ratio analysis

In this empirical part of the thesis, I will calculate and interpret a wide range of ratios that are
divided into four categories. Also, I’ll plot some of them (profitability ratios) against the
Tunisian industry average derived from the trading platform “investing.com”.
All data used to compute ratios are extracted from financial statement of the two companies
published on the BVMT website25.
Industry Average profitability ratios were extracted on 09/03/2021 from the data base provided
by the financial platform “Investing.com” and they correspond to the Tunisian pharmaceutical
industry26,27.
3.2.1 Activity ratios
ADWYA
2016 2017 2018 2019 2020
Inventory Turnover 1.87 2.10 2.18 1.96 1.33
Days of Inventory Outstanding (days) 195.46 173.72 167.61 186.39 273.84
Receivables Turnover 4.58 5.28 5.58 5.24 5.03
Days of Sales Outstanding (days) 79.62 69.19 65.44 69.72 72.60
Payables Turnover 1.51 1.70 2.33 2.21 1.83
Days of Payables Outstanding (days) 241.86 214.33 156.48 165.01 199.88
Working capital turnover 7.29 8.36 8.78 9.84 10.64
Fixed asset turnover 2.85 3.01 3.04 2.77 2.43
Total asset Turnover 0.99 1.08 1.07 0.93 0.79
Table 8: ADWYA’s Activity ratios
25
http://www.bvmt.com.tn
26
ADWYA (ADWYA) Financial Ratios (investing.com)
27
Unimed SA (UMED) Financial Ratios (investing.com)
39
UNIMED
2016 2017 2018 2019 2020
Inventory Turnover 1.44 1.37 1.20 1.29 1.13
Days of Inventory Outstanding (days) 254.22 265.73 305.17 283.70 321.89
Receivables Turnover 5.00 5.23 5.68 6.72 4.71
Days of Sales Outstanding (days) 73.07 69.75 64.28 54.32 77.45
Payables Turnover 4.17 4.95 4.14 4.42 4.81
Days of Payables Outstanding (days) 87.63 73.69 88.21 82.61 75.96
Working capital turnover 1.71 1.83 2.01 2.15 1.67
Fixed asset turnover 2.05 1.97 1.89 1.82 1.33
Total asset Turnover 0.69 0.72 0.74 0.76 0.59
Table 9: UNIMED’s Activity ratios
Concerning the inventory turnover UNIMED ratio is below ADWYA ratio meaning that
UNIMED inventory is sold a way slower than ADWYA and that many resources of the firm are
tied up in inventory. This is due to the decrease of export activity to Libya because of the war
situation amplified by the covid-19 crisis. Thus, UNIMED inventory is kept for much longer
period than ADWYA is doing and this could be confirmed by the very high UNIMED’s days of
inventory on hand. That’s why the firm needs a more effective inventory management strategy.
Receivables turnover ratios for the two companies are close to each other and subsequently are
days of sales outstanding.
Concerning the payables turnover UNIMED ratio is below ADWYA ratio meaning that
UNIMED is taking more time to pay its suppliers than ADWYA does. This is confirmed by the
high days of payables outstanding and could be an advantage since the company is having more
access to its cash.
ADWYA higher working capital turnover ratio compared to UNIMED reflects how the firm
outperformed UNIMED in the way it uses its current assets and liabilities to support sales.
ADWYA higher fixed asset turnover ratio compared to UNIMED reflects how the firm
outperformed UNIMED in the way it utilizes its fixed assets to support revenues.
40
ADWYA higher total asset turnover ratio compared to UNIMED reflects how the firm
outperformed UNIMED in the way it utilizes its total assets to support revenues.
➔ ADWYA is more efficient than UNIMED in the way it utilizes its various assets, thus its
operational performance is higher than that of UNIMED.
3.2.2 Liquidity ratios

Company ADWYA
Year 2016 2017 2018 2019 2020
Current ratio 1.27 1.25 1.23 1.13 1.13
Quick ratio 0.49 0.46 0.40 0.31 0.32
Cash ratio 0.07 0.06 0.05 0.01 0.07
Cash Conversion Cycle (days) 33.22 28.58 76.57 91.10 146.56
Table 10: ADWYA’s liquidity ratios
Company UNIMED
year 2016 2017 2018 2019 2020
Current ratio 3.47 3.73 3.22 3.32 3.81
Quick ratio 1.86 1.74 1.14 0.87 1.32
Cash ratio 1.02 0.76 0.37 0.19 0.16
Cash Conversion Cycle (days) 239.67 261.79 281.24 255.41 323.38
Table 11: UNIMED’s liquidity ratios
Only the supposed liquidity of the current assets that the analyst anticipates will be utilized to
pay off current liabilities distinguishes the current, quick, and cash ratios.
In terms of liquidity, we can notice from current, quick and cash ratios that UNIMED has a
stronger liquidity position than ADWYA does. Thus, its ability to pay short-term bills is better
consequently.
The current ratio for both companies is higher than one, meaning that they have positive working
capital and that they are probably facing no liquidity crisis.
41
The too high cash conversion cycle for UNIMED is considered undesirable as it’s explained by a
very high days of inventory on hand (see table 5), which means that the company takes too much
time to sell its inventory and may have a poor inventory management strategy. This metric
considers how much time it takes for the company to sell its inventory, collect receivables, and
pay its bills.
➔ Globally, regarding the liquidity and short-term solvency, UNIMED is more liquid and
solvent than ADWYA. However, the company must ameliorate its inventory
management strategy.
3.2.3 Solvency ratios

company ADWYA
year 2016 2017 2018 2019 2020
Debt to assets 0.13 0.11 0.31 0.29 0.33
Debt to capital 0.25 0.21 0.47 0.46 0.53
Debt to equity 0.33 0.26 0.90 0.85 1.12
Financial leverage 2.51 2.41 2.60 2.93 3.17
Interest coverage (times) 2.13 2.83 1.49 1.22 1.39
Table 12: ADWYA’s solvency ratios
company UNIMED
year 2016 2017 2018 2019 2020
Debt to assets 0.04 0.05 0.12 0.20 0.18
Debt to capital 0.05 0.06 0.15 0.23 0.19
Debt to equity 0.05 0.06 0.17 0.29 0.24
Financial leverage 1.23 1.23 1.33 1.46 1.43
Interest coverage (times) 33.20 47.80 22.29 7.34 3.55
Table 13: UNIMED’s solvency ratios
UNIMED’s Debt to assets ratio is lower than ADWYA’s ratio. The lower this ratio the better the
company pays its liabilities by selling its assets. Increases in this ratio over time for the two
companies suggest a greater reliance on debt as a source of financing. Also increases of debt to
42
capital and debt to equity ratios, especially in the last three years, suggest a greater reliance on
debt as a source of financing.
Financial leverage ratios of the two firms are increasing, especially for ADWYA, which
indicates greater reliance on debt financing and consequently indicates higher risk to equity
holders.
ADWYA’s Interest coverage ratio is much lower than that of UNIMED, which may indicate that
ADWYA may have difficulties in meeting its debt payments.
➔ Globally, regarding the long-term solvency, UNIMED is more solvent than ADWYA.
However, its interest coverage rapid and intense decrease over time may be perceived as
a negative signal from investors.
3.2.4 Profitability ratios

➢ Gross margin:
year 2016 2017 2018 2019 2020

ADWYA Gross profit margin 39.79% 40.56% 37.82% 35.14% 42.40%
UNIMED Gross profit margin 55.67% 58.55% 61.26% 57.05% 54.47%
Industry average (5YA28) 37.75% 37.75% 37.75% 37.75% 37.75%
Table 14: Gross profit margin evolution
70.00%
60.00%
50.00%
40.00%
30.00%
20.00%
10.00%
0.00%
2016 2017 2018 2019 2020
ADWYA Gross profit margin UNIMED Gross profit margin

Industry average
Figure 5: Gross profit margin evolution
28
Five years average
43
ADWYA’s gross margin ratio is near to the industry average. However, UNIMED’s gross
margin is considered to be much higher than the industry average, reflecting that its managers are
good in turning their efforts into profits.
➢ Operating margin:
year 2016 2017 2018 2019 2020

ADWYA Operating margin 7.47% 10.70% 10.19% 5.28% 9.81%
UNIMED Operating margin 21.42% 21.34% 27.44% 26.88% 14.60%
Industry average5YA 11.32% 11.32% 11.32% 11.32% 11.32%
Table 15: Operating margin evolution
30.00%
25.00%
20.00%
15.00%
10.00%
5.00%
0.00%
2016 2017 2018 2019 2020
ADWYA Operating margin UNIMED Operating margin

Industry average
Figure 6: Operating margin evolution
The operating margin ratio of UNIMED is Above the industry average, however that of
ADWYA is below that average. The sharp drop of UNIMED’s ratio during 2020 is explained by
a sharp drop in operating income by 53.86% during 2020, from 28,816,067 TND in 2019 to
13,296,478 TND in 2020.
➢ Pretax margin:
year 2016 2017 2018 2019 2020

ADWYA Pretax margin 4.24% 6.83% 3.40% 1.68% 3.02%
UNIMED Pretax margin 21.62% 22.16% 26.26% 20.61% 10.19%
Table 16: Pretax margin evolution
44
30.00%
25.00%
20.00%
15.00%
10.00%
5.00%
0.00%
2016 2017 2018 2019 2020
ADWYA Pretax margin UNIMED Pretax margin Industry average
Figure 7: Pretax margin evolution
The pretax margin ratio of UNIMED is Above the industry average, however that of ADWYA is
below that average.
➢ Net profit margin:
year 2016 2017 2018 2019 2020

ADWYA Net profit margin 3.23% 5.15% 2.89% 1.47% 1.64%
UNIMED Net profit margin 17.03% 17.82% 21.08% 16.50% 7.67%
Table 17: Net profit margin evolution
25.00%
20.00%
15.00%
10.00%
5.00%
0.00%
2016 2017 2018 2019 2020
ADWYA Net profit margin UNIMED Net profit margin

Industry average
Figure 8: Net profit margin evolution
45
The net profit margin ratio of UNIMED is Above the industry average, however that of
ADWYA is below that average.
➢ ROA:
year 2016 2017 2018 2019 2020

ADWYA ROA 3.19% 5.57% 3.08% 1.37% 1.29%
UNIMED ROA 11.70% 12.32% 13.90% 11.83% 4.41%
Table 18: Return on Assets (ROA) evolution
16.00%
14.00%
12.00%
10.00%
8.00%
6.00%
4.00%
2.00%
0.00%
2016 2017 2018 2019 2020
ADWYA ROA UNIMED ROA Industry average
Figure 9: Return on Assets (ROA) evolution
ADWYA was not efficiently generating income using its assets by underperforming the industry
ROA. However, UNIMED outperformed that industry average over time, except for the last year
2020. This could be explained by a sharp drop in net income by 60.55% during 2020, from
17,692,251 TND in 2019 to 6,979,958 TND in 2020.
➢ ROE:
year 2016 2017 2018 2019 2020

ADWYA ROE 7.80% 13.42% 8.00% 4.00% 4.10%
UNIMED ROE 14.40% 15.73% 20.86% 18.28% 6.49%
Table 19: Return on Equity (ROE) evolution
46
25.00%
20.00%
15.00%
10.00%
5.00%
0.00%
2016 2017 2018 2019 2020
ADWYA ROE UNIMED ROE Industry average
Figure 10: Return on Equity (ROE) evolution
ADWYA was not efficiently generating income using shareholders’ equity by underperforming
the industry ROA considerably. Unlike, UNIMED’s ROE is close to the industry average over
time, except for the last year 2020. This also could be explained by the sharp drop in net income
by 60.55% during 2020.
➔ Although UNIMED’s profitability ratios are always higher than those of ADWYA over
time, their evolution shows that ADWYA has reacted better than UNIMED to the covid-
19 crisis. In fact, during 2020, these ratios have increased or stagnated for ADWYA and
have fallen considerably for UNIMED. So ADWYA has better resisted to the covid-19
pandemic.
3.3. Absolute Valuation
3.3.1 Methodology
Two methods, belonging to the absolute valuation approach, will be conducted to find the
intrinsic value of the firms’ stocks. These methods are the DDM valuation and FCFF valuation.
All data used to perform absolute valuation is extracted from financial statement of the two
companies published on the BVMT website and all values are in TND, unless otherwise
indicated.
Before beginning the valuation, it’s crucial to estimate the appropriate discount rates and the
appropriate growth rates for the two companies. Thus, steps I will undertake to perform absolute
valuation are:
47
- Finding Beta (β), the market return and the risk-free rate to estimate the cost of equity
- Finding interest payments and total outstanding debt to estimate the cost of debt
- Estimating the weighted average cost of capital (WACC)
- Estimating growth rates for both companies
- Estimating future dividend payments, computing the terminal value, and applying the DDM
model using the appropriate discount rate (cost of equity) to get the intrinsic value.
- Computing the Free Cash Flow to the Firm, computing the terminal value, and applying the
FCFF model using the appropriate discount rate (weighted average cost of capital) to get the
intrinsic value.
3.3.2 WACC estimation
A. Cost of equity estimation:

- The market return is extracted from the prospectus of introduction into the stock market
of “Tunisie Valeurs” elaborated by “Arab Financial Consultants” in 2018 and it
corresponds to the Tunindex average annual return over the last fifteen past years (2002-
2017)29.
- The risk free-rate is extracted from the website of the Tunisian Central Bank and it
represents the 10-year treasury yield30.
- The market risk premium is computed as the difference between the market return and
the risk-free rate.
- Beta is computed by performing a linear regression between each company’s monthly
returns (ADWYA31 and UNIMED32) and their benchmark TUNINDEX33 monthly returns
over the period of the last 5 years (2016-2020). The slope coefficient of the linear
regression, using excel tools, is the systematic risk Beta.
- The equity risk premium is computed by multiplying the market risk premium by the
Beta coefficient.
29
PRESENTATION RESUMEE DE LA SOCIETE (tunisievaleurs.com)
30
Statistique - Principaux taux dintrt (bct.gov.tn)
31
ADWYA (ADWYA) Historical Prices - Investing.com India
32
Unimed SA (UMED) Historical Prices - Investing.com India
33
Tunindex Historical Rates - Investing.com India
48
Finally, the cost of equity is computed by adding the risk-free rate to the equity risk premium.
The cost of equity is estimated using the CAPM formula:
ADWYA UNIMED
Market return 13.11% 13.11%
Risk-free rate 7.00% 7.00%
Market risk premium 6.11% 6.11%
Beta 0.5421 0.3755
Equity risk premium 3.31% 2.29%
Expected cost of equity 10.31% 9.29%
Table 20: Cost of equity estimation
➔ The cost of equity of ADWYA is higher than that of UNIMED. That’s obviously evident
since ADWYA have a higher systematic risk (Beta), thus a higher required rate of return
by equity holders.
B. Cost of debt estimation:

The cost of debt is estimated by averaging annual effective interest rates over the past five years
(2016-2020). Finally, the after-tax cost of debt is found by multiplying the latter average cost of
debt by the corporate tax rate of 25%.
▪ ADWYA:
ADWYA
Year 2016 2017 2018 2019 2020
Interest Payments 1,004,520 1,556,359 3,144,194 3,962,920 4,372,640
Beginning-year
9,414,051 7,439,470 6,177,878 12,574,882 10,894,279
Long-Term debt
Beginning-year
3,816,127 3,842,061 3,929,849 22,339,616 21,676,894
Short-Term debt
Total outstanding debt 13,230,178 11,281,531 10,107,727 34,914,498 32,571,173
Effective Interest Rate 7.59% 13.80% 31.11% 11.35% 13.42%
Average cost of debt (expected effective cost of debt) 15.45%
After Tax Cost of Debt 11.59%
Table 21: ADWYA’s Cost of debt estimation
49
• UNIMED:
UNIMED
Year 2016 2017 2018 2019 2020
Interest Payments 418,590 314,127 1,071,887 3,925,618 3,744,462
Beginning-year
3,546,995 1,421,435 3,903,282 15,346,103 25,904,350
Long-Term debt
Beginning-year
2,432,117 2,515,873 1,463,342 804,328 3,340,204
Short-Term debt
Total outstanding debt 5,979,112 3,937,308 5,366,624 16,150,431 29,244,554
Effective Interest Rate 7.00% 7.98% 19.97% 24.31% 12.80%
Average cost of debt (expected effective cost of debt) 14.41%
After Tax Cost of Debt 10.81%
Table 22: UNIMED’s cost of debt estimation
C. WACC estimation:
Now that we have estimated the cost of equity and the cost of debt, applying the WACC formula
will lead to the weighted average cost of capital:
ADWYA UNIMED
Outstanding common equity or market capitalization 96,876,000 305,600,000
Outstanding debt 32,571,173 29,244,554
Outstanding debt and common equity 129,447,173 334,844,554
Equity weight 74.84% 91.27%
Cost of equity 10.31% 9.29%
Debt weight 25.16% 8.73%
Cost of debt (Before Tax) 15.45% 14.41%
Corporate tax rate (T) 25.00% 25.00%
WACC 10.63% 9.43%
Table 23: WACC estimation
3.3.3 Growth rate estimation

The short-term or sustainable growth rate is estimated by averaging each company’s annual
growth rate since their introduction into the Tunisian stock market.
50
A. ADWYA:
Year 2007 2008 2009 2010 2011 2012 2013
EPS 0.318 0.404 0.397 0.410 0.107 0.390 0.505
Dividend
0.250 0.270 0.270 0.200 0.000 0.150 0.250
payment
Net Income 3,498,306 4,447,254 4,368,986 4,515,400 1,181,572 5,150,060 6,670,612
Owner’s Equity 16,331,632 17,995,288 19,362,339 20,907,739 19,889,311 25,039,371 29,729,983
ROE 21.42% 25.91% 23.39% 22.43% 5.79% 22.93% 24.36%
Retention Rate 21.38% 33.17% 31.99% 51.22% 100.00% 61.54% 50.50%
Annual
4.58% 8.59% 7.48% 11.49% 5.79% 14.11% 12.30%
Growth rate
Year 2014 2015 2016 2017 2018 2019 2020
EPS 0.418 0.377 0.142 0.239 0.145 0.072 0.074
Dividend
0.270 0.240 0.000 0.150 0.100 0.000 0.100
payment
Net Income 6,613,697 6,485,971 2,734,405 4,914,454 3,122,741 1,547,713 1,602,926
Owner’s Equity 33,043,680 35,954,255 34,183,160 39,032,619 39,002,918 38,336,184 39,888,909
ROE 21.07% 18.80% 7.80% 13.42% 8.00% 4.00% 4.10%
Retention Rate 35.41% 36.34% 100.00% 37.15% 31.06% 100.00% -34.30%
Annual
7.46% 6.83% 7.80% 4.99% 2.49% 4.00% -1.41%
Growth Rate
Average growth rate (expected sustainable growth rate) 6.89%
Table 24: ADWYA’s growth rate estimation
B. UNIMED
Year 2016 2017 2018 2019 2020
Earnings per share 0.408 0.405 0.574 0.553 0.218
Dividend payment 0.225 0.235 0.345 0.000 0.469
Net Income 11,044,888 12,532,575 18,359,678 17,692,251 6,979,958
Shareholders' equity 76,709,168 82,622,654 93,439,569 100,086,670 115,146,747
ROE 14.40% 15.73% 20.86% 18.28% 6.49%
Retention Rate 44.89% 42.02% 39.87% 100.00% -115.02%
Annual Growth Rate 6.46% 6.61% 8.31% 18.28% -7.46%
Average growth rate (expected sustainable growth rate) 6.44%
Table 25: UNIMED’s growth rate estimation
As a result, our estimations lead to sustainable growth rates of 6.89% for ADWYA and 6.44%
for UNIMED.
Being cautious concerning the perpetual growth rate used to compute the terminal value after the
forecast period of 5 years, it’s assumed to be 2% for both companies.
51
Our assumptions are that each company will grow at its short-term growth rate for the next 5
years and then will grow indefinitely at the assumed perpetual growth rate of 2%.
3.3.4 DDM valuation
A. ADWYA
For better forecasts, the initial dividend payment of ADWYA is estimated by averaging the
dividend payments distributed by the company since its introduction into the stock market (2007-
2020).
Applying the multi-stage DDM model for ADWYA leads to:
Multistage DDM model ADWYA

Discount rate
10.31%
(estimated Ke)
Year Growth Rate Dividend per share Present Value Terminal Value
2020 0.205
2021 6.89% 0.219 0.198
2022 6.89% 0.234 0.192
2023 6.89% 0.250 0.186
2024 6.89% 0.267 0.187
2025 6.89% 0.285 0.175
2026 2.00% 0.291 2.144 3.503
Intrinsic value per share 3.083
Price on 04/01/2021 4.500
Interpretation overvalued
Table 26: Dividend Discount Model (DDM) application for ADWYA
According to the dividend discount model ADWYA is overvalued since the company’s stock
price is trading on 04/01/2021 above the estimated intrinsic price of 3.083 TND.
B. UNIMED
For better forecasts, the initial dividend payment of UNIMED is estimated by averaging the
dividend payments distributed by the company since its introduction into the stock market (2016-
2020).
52
Applying the two-stage DDM model for UNIMED leads to:
Multistage DDM model UNIMED

Discount rate
9.29%
(estimated Ke)
Year Growth Rate Dividend per share Present Value Terminal Value
2020 0.319
2021 6.44% 0.339 0.310
2022 6.44% 0.361 0.302
2023 6.44% 0.384 0.294
2024 6.44% 0.409 0.287
2025 6.44% 0.435 0.279
2026 2.00% 0.444 3.902 6.086
Intrinsic value per share 5.374
Price on 04/01/2021 9.550
Table 27: Dividend Discount Model (DDM) application for UNIMED
According to the dividend discount model UNIMED is overvalued since the company’s stock
price is trading on 04/01/2021 above the estimated intrinsic price of 5.374 TND.
3.3.5 FCFF valuation

To get the value of FCFF we have to determine:
➢ the fixed capital investment amount:
ADWYA (2020) UNIMED (2020)

(+) Capex 3,154,920 6,994,628
(-) proceeds from
206,169 81,800
long-term asset sales
(=) FCINV 2,948,751 6,912,828
Table 28: Fixed Capital Investment determination
53
➢ The operating working capital investment:
ADWYA UNIMED
Year 2019 2020 2019 2020
(+) Accounts Receivables 19,241,634 19,615,114 15,140,523 23,495,063
(+) Inventory 36,131,272 49,731,572 37,640,645 35,525,876
(+) Other Current Assets 15,852,924 13,567,012 17,051,631 15,142,943
(-) Accounts Payables 35,270,523 41,841,997 9,266,954 7,833,739
(-) Other Current Liabilities 6,740,020 5,663,599 9,709,717 6,535,076
(=) Operating Working Capital 29,215,287 35,408,102 50,856,128 59,795,067
WCINV (or ∆OWC) 6,192,815 8,938,939
Table 29: Operating Working Capital Investment determination
➢ Finally, the FCFF is computed as follows:
ADWYA (2020) UNIMED (2020)

EBIT 9,583,055 13,296,478
EBIT*(1-T) 7,187,291 9,972,359
(+) Depreciation and amortization 5,684,269 10,584,357
(-) FCINV 2,948,751 6,912,828
(-) WCINV (or ∆OWC) 6,192,815 8,938,939
(=) FCFF 3,729,994 4,704,949
Table 30: FCFF determination
Now, the application of the FCFF model is as follows:
A. ADWYA:
Applying the two-stage FCFF model for ADWYA leads to:
Multistage FCFF model ADWYA

Discount rate (estimated WACC) 10.63%
Year Growth Rate FCFF PV TV
2020 3,729,994
2021 6.89% 3,987,107 3,603,875
2022 6.89% 4,261,942 3,482,020
2023 6.89% 4,555,722 3,364,285
2024 6.89% 4,869,753 3,250,532
2025 6.89% 5,205,431 3,140,624
2026 2.00% 5,309,539 37,103,099 61,496,568
Enterprise Value 53,944,435
54
Total Debt 32,571,173

Cash & Cash Equivalents
5,131,674
and marketable securities
Net debt 27,439,499
Equity Value 26,504,936
Outstanding Shares 21,528,000
Intrinsic Value per share 1.231
Price on 04/01/2021 4.500
Table 31: FCFF model application for ADWYA
According to the FCFF model ADWYA is overvalued since the company’s stock price is trading
on 04/01/2021 above the estimated intrinsic price of 1.231 TND.
B. UNIMED:
Applying the multi-stage FCFF model for UNIMED leads to:
Multistage FCFF model UNIMED

Discount rate (estimated WACC) 9.43%
Year Growth Rate FCFF PV TV
2020 4,704,949
2021 6.44% 5,008,067 4,576,644
2022 6.44% 5,330,715 4,451,839
2023 6.44% 5,674,149 4,330,436
2024 6.44% 6,039,710 4,212,345
2025 6.44% 6,428,821 4,097,474
2026 2.00% 6,557,398 56,276,159 88,295,713
Enterprise Value 77,944,897
Total Debt 29,244,554
Cash & Cash Equivalents
3,338,935
and marketable securities
Net debt 25,905,619
Equity Value 52,039,278
Outstanding Shares 32,000,000
Intrinsic Value per share 1.626
Price on 04/01/2021 9.550
Interpretation Overvalued
Table 32: FCFF model application for UNIMED
According to the FCFF model UNIMED is overvalued since the company’s stock price is trading
on 04/01/2021 above the estimated intrinsic price of 1.626 TND.
55
3.4. Relative valuation

Regarding this approach, first I will get the average industry comparable from online databases.
Then I will multiply them by the company’s fundamental quantities to get their implied price
compared to their competitors.
Instead of selecting comparable firms with the same characteristics and averaging their multiples
to get the industry average multiples, we used directly the pharmaceutical industry multiples
provided by reliable online databases:
- Pharmaceutical Price multiples were extracted on 09/03/2021 from the data base
provided by the financial platform “Investing.com” and they correspond to the Tunisian
pharmaceutical industry34,35.
- Enterprise value multiples were extracted on 09/03/2021 from the data base provided by
the professor in finance at the Stern School of Business at New York University, Aswath
Damodaran, on his website “pages.stern.nyu.edu”. These multiples correspond to the
emerging pharmaceutical industry36.
For each multiple, the process was to pick up the drug industry average and multiply it by the
company’s data (company’s denominator) to get the implied price.
A. ADWYA
Multiples (Industry Average) Company Data (ADWYA) Implied Price
P/E 23.470x Earnings per share 0.074 1.748
Price to Sales 1.730x Sales per share 4.537 7.849
Price to Book value 4.290x Book value per share 1.853 7.949
EV to EBIT 30.952x EBIT per share 0.445 12.503
EV to EBITDA 21.149x EBITDA per share 0.709 13.724
Implied Average Price by the multiple’s method 8.755
Market price on 04/01/2021 4.500
Relatively
Interpretation
undervalued
Table 33: The multiples method application for ADWYA
34
ADWYA (ADWYA) Financial Ratios (investing.com)
35
Unimed SA (UMED) Financial Ratios (investing.com)
36
http://people.stern.nyu.edu/adamodar/New_Home_Page/datacurrent.html
56
The implied average price by the multiple’s method suggests that ADWYA is relatively
undervalued since the company’s stock price is trading below it on 04/01/2021.
B. UNIMED
Multiples (Industry Average) Company Data (UNIMED) Implied Price
P/E 23.470x Earnings per share 0.218 5.119
Price to Sales 1.730x Sales per share 2.845 4.922
Price to Book value 4.290x Book value per share 3.598 15.437
EV to EBIT 30.952x EBIT per share 0.416 12.051
EV to EBITDA 21.149x EBITDA per share 0.746 14.973
Implied Average Price by the multiple’s method 10.501
Market price on 04/01/2021 9.550
Relatively
Interpretation
undervalued
Table 34: The multiples method application for UNIMED
The implied average price by the multiple’s method suggests that UNIMED is relatively
undervalued since the company’s stock price is trading below it on 04/01/2021.
3.5. Conclusion
The importance of ratios in predicting stock returns (Lev and Thiagarajan, 1992; Abarbanell and
Bushee, 1998) has been the subject of extensive academic research. Financial statement ratios
are successful in picking investments, according to this research. That’s why ratios are frequently
used by practitioners to explain the value of securities. Also, ratio analysis and evolution reflect
the firm’s attractiveness to investors (Bajkowski, 1999). Based on the latter researches, this
thesis predicts that:
➢ ADWYA will probably experience positive stock returns (expected stock price
appreciation) as its ratio analysis and evolution (especially profitability ratios) show that
it has persisted versus the covid-19 crisis, making it an attractive stock to investors.
➢ UNIMED will probably experience negative stock returns (expected stock price
depreciation) as its ratio analysis and evolution (especially profitability ratios) show that
it has not persisted versus the covid-19 crisis, making it an unattractive stock to investors.
Also, Wei et al (2003) state that a robust negative relationship between capital investment
(CAPEX) and future stock returns exists especially when firms have high free cash flows and
57
low leverage. Compared to ADWYA, UNIMED’s higher free cash flow of 4,704,949 TND in
2020 computed before in the FCFF valuation and relatively lower leverage (solvency ratios)
computed before in the ratio analysis show that its very high CAPEX value of 6,994,628 TND in
2020 may indicate negative future stock returns according to the latter research.
Averaging intrinsic prices of the three valuation methods leads to:
ADWYA UNIMED
DDM 3.083 5.374
FCFF 1.231 1.626
Multiples 8.755 10.501
Average 4.356 5.834
Price on 04/01/2021 4.500 9.550
Interpretation Slightly Overvalued Overvalued
Expectation Expected slight price depreciation Expected price depreciation
Price on 01/02/2021 4.200 9.300
Price on 01/03/2021 4.160 8.720
Price on 01/04/2021 5.140 8.400
Price on 03/05/2021 4.650 7.480
Price on 01/06/2021 4.910 7.050
Table 35: Valuation summary
The average intrinsic price from the three valuation methods suggests that, at 04/01/2021,
ADWYA is slightly Overvalued and UNIMED is so much overvalued, meaning that ADWYA is
trading slightly above its intrinsic value and UNIMED is trading so much above it. That’s why:
➢ Based on valuation methods, this research estimates the movement of the stock price of
ADWYA to be uncertain in the future since its estimated intrinsic value is very close to
its market price. But along with ratio analysis which has shown that ADWYA’s ratios has
persisted better than UNIMED’s ratios against the covid-19 crisis, this research
recommends to hold and/or go long on ADWYA’s stock. This is the same
recommendation made by Myriam Mathlouthi and Maroua Dakhlaoui (December, 2020)
concerning ADWYA’s stock37.
37
FOCUS VALEUR (maxulabourse.com.tn)
58
➢ Based on valuation methods and ratio analysis that has shown, respectively, that
UNIMED is so much overvalued and that it has not persisted against to the covid-19
crisis, this research recommends to go short on UNIMED’s stock.
The estimated intrinsic values seem to be realistic as:
➢ the share price of ADWYA appreciated by 9.11% during the first five months of 2021
compared to its beginning year market price.
➢ the share price of UNIMED has fallen considerably and continuously during the first five
months of 2021 and has reached a low market price of 7.050 TND, losing 26.18% of its
market price during this short period compared to its beginning year market price.
59
General conclusion
General Conclusion
As an intern at Maxula bourse, I had the opportunity to be a part of the financial analysts' team,
learn about the tasks they perform and discover how much data availability is crucial in the
framework of financial analysis and equity valuation. It was challenging for me to apply and
translate theoretical concepts and knowledge learned at the university into the real-life complex
circumstances.
The purpose of this study was to perform a financial analysis and an equity valuation of the two
major publicly traded companies that manufactures and develops pharmaceuticals for domestic
and international sale in order to provide investors with useful investment decisions.
Outlining the financial analysis and valuation methodologies, a literature review part was
produced before performing this financial analysis and equity valuation. The financial analysis
includes ratio analysis and the equity valuation includes the absolute valuation process and
calculation, followed by the relative valuation process and calculation.
The thesis results comprised graphs, tables and data that have been examined carefully to end up
with a detailed ratio analysis and a deep valuation process. Along with the ratio analysis,
valuation findings have been examined carefully to end up with at a stock price estimate of 4.356
for ADWYA and 5.834 For UNIMED, providing investors with investment decisions.
Overall, this study recommends investors to hold and/or purchase shares of ADWYA and sell
shares of UNIMED.
However, I need to mention that some of the estimations and assumptions on which valuations
are based could be relatively weak. I hope that this thesis will stimulate further investigation in
the Tunisian pharmaceutical industry in order to obtain more robust results on the intrinsic value
of these companies. That’s why residual income models or another entirely different valuation
framework known as technical analysis can be applied to these stocks to get more accurate
results.
60
References
References
Bibliography:
Abarbanell, J. S., & Bushee, B. J. (1998). Abnormal returns to a fundamental analysis strategy.
Accounting Review, 19-45.
Alexander, G. J., & Chervany, N. L. (1980). On the estimation and stability of beta. Journal of
Financial and Quantitative Analysis, p 123
Bajkowski, J. (1999). Financial ratio analysis: Putting the numbers to work. AAII
Journal, 21(01), p 5
Damodaran, A. (2002). Relative valuation. Investment Valuation, p 3
DRĂPGOI, B. A., Stancu, I., Mitroi, A., & Stancu, A. T. (2016). Financial investment
companies (sifs) relative valuation and fundamentals. Economic Computation & Economic
Cybernetics Studies & Research, 50(2), p 29
Fuller, R. J., & Hsia, C. C. (1984). A simplified common stock valuation model. Financial
Analysts Journal, 40(5), p 49-50
Heller, D. (Ed.). (2021). Performance of Valuation Methods in Financial Transactions. John

Wiley & Sons. ISBN 978-1-78630-636-4. p 123
Lev, B., & Thiagarajan, S. R. (1993). Fundamental information analysis. Journal of Accounting
research, 31(2), p 190-215.
Lie, E., & Lie, H. J. (2002). Multiples used to estimate corporate value. Financial Analysts
Journal, 58(2), p 44-54.
Pinto, J. E. (2010). Equity asset valuation. John Wiley & Sons. 2nd edition. ISBN: 978-0-470-
57143-9. p 57-58, 76-77, 87, 112-115, 128, 147-152, 186, 259-260
Robinson, T. R. (2015). International financial statement analysis. John Wiley & Sons. 3rd
edition. ISBN: 9781118999479. p 314-315, 322, 325, 327, 329-330.
Suozzo, P., Cooper, S., Sutherland, G., & Deng, Z. (2001). Valuation multiples: A primer. UBS
Warburg: Valuation and Accounting, 1, p 3.
61
References
Van Horne, J. C., & Wachowicz, J. M. (2008). Fundamentals of financial management. Pearson
Education. 13th edition. ISBN: 978-0-273-71363-0. p 138-142.
Wei, K. C., Xie, F., & Titman, S. (2003). Capital investments and stock returns. NBER Working
Paper, (w9951).
62
Table of contents
Table of Contents
Acknowledgements ............................................................................................................................. 2
General Introduction .................................................................................................................... 8
1. Chapter 1: Host Company’s context .................................................................................. 10
1.1. Tunisian capital market overview .................................................................................. 10
1.2. Tunisian brokerage activity overview ............................................................................ 11
1.3. Presentation of the host company................................................................................... 13
1.3.1 Company overview ....................................................................................................... 13
1.3.2 Company activities ....................................................................................................... 14
1.3.3 Financial Engineering Achievements ........................................................................... 15
1.3.4 Types of accounts and Tax benefits ............................................................................. 17
1.4. Internship description ..................................................................................................... 19
1.4.1 Internship Context ........................................................................................................ 19
1.4.2 Objectives of the Internship .......................................................................................... 19
1.4.3 Challenges and Obstacles ............................................................................................. 20
2. Chapter 2: Literature review.............................................................................................. 21
2.1. Ratio analysis ................................................................................................................. 21
2.1.1 Introduction .................................................................................................................. 21
2.1.2 Activity ratios ............................................................................................................... 21
2.1.4 Solvency ratios ............................................................................................................. 22
2.1.6 Conclusion .................................................................................................................... 24
2.2. Valuation Methods ......................................................................................................... 24
2.2.1 Introduction .................................................................................................................. 24
2.2.2 Basic valuation concepts .............................................................................................. 25
2.2.3 Absolute Valuation methods ........................................................................................ 28
2.2.4 Relative valuation ......................................................................................................... 32
2.2.5 Conclusion .................................................................................................................... 33
3. Chapter 3: Methodology and empirical findings .............................................................. 34
63
Table of contents
3.1. Industry and company overview .................................................................................... 34

3.1.1 Industry overview ......................................................................................................... 34
3.1.2 Companies overview .................................................................................................... 36
3.2. Ratio analysis ................................................................................................................. 39
3.2.1 Activity ratios ............................................................................................................... 39
3.2.3 Solvency ratios ............................................................................................................. 42
3.3. Absolute Valuation ......................................................................................................... 47
3.3.1 Methodology ................................................................................................................. 47
3.3.2 WACC estimation......................................................................................................... 48
3.3.3 Growth rate estimation ................................................................................................. 50
3.3.4 DDM valuation ............................................................................................................. 52
3.3.5 FCFF valuation ............................................................................................................. 53
3.4. Relative valuation ........................................................................................................... 56
3.5. Conclusion...................................................................................................................... 57
General Conclusion..................................................................................................................... 60
References .................................................................................................................................... 61
64

Fundamental Analysis of The Tunisian Pharmaceutical Industry ADWYA & UNIMED

Uploaded by

Document Information

Original Title

Copyright

Available Formats

Share this document

Share or Embed Document

Sharing Options

Did you find this document useful?

Is this content inappropriate?

Copyright:

Available Formats

Fundamental Analysis of The Tunisian Pharmaceutical Industry ADWYA & UNIMED

Uploaded by

Copyright:

Available Formats

Republic of Tunisia

INSTITUTE OF HIGHER COMMERCIAL STUDIES OF SOUSSE

A comparative fundamental analysis in the Tunisian pharmaceutical

Mr. Riadh GHENIMA, PhD

Ms. Nejla Ben JEMIA, Financial Analyst

Ms. Marwa DAKHLAOUI, Financial Analyst

Academic Year: 2020-2021

3.1. Industry and company overview .................................................................................... 34

Figure 1: Organizational chart of the Tunisian capital market ..................................................... 11

1. Chapter 1: Host Company’s context

1.1. Tunisian capital market overview

Figure 1: Organizational chart of the Tunisian capital market

1.2. Tunisian brokerage activity overview

• Financial advice and canvassing

Intermediation companies subject to approval have a monopoly on the trading of securities on

➢ Have Tunisian nationality

• Compagnie Général d'Investissement

1.3. Presentation of the host company

1.3.1 Company overview

1.3.2 Company activities

✓ Research and Analysis:

Figure 2: Organizational chart of Maxula Bourse

1.3.3 Financial Engineering Achievements

Fundraising operations carried out by Maxula Bourse include:

Source: “Maxula Bourse” website

Source: “Maxula Bourse” website

Advice and Assistance operations carried out by Maxula Bourse include:

Source: “Maxula Bourse” website

1.3.4 Types of accounts and Tax benefits

- The execution of orders on the stock exchange.

- Real-time market access

- Keeping investor’s account.

- Consultation of Accounts and Statement Inquires

- Access to studies and analyzes.

• Mandated management account:

It consists of a delegation of the responsibility of portfolio management to a professional, a stock

• Equity Savings Account-ESA (CEA6):

• For Equity Savings Account:

1.4. Internship description

1.4.1 Internship Context

1.4.2 Objectives of the Internship

1.4.3 Challenges and Obstacles

2. Chapter 2: Literature review

2.1. Ratio analysis

2.1.2 Activity ratios

Activity ratio Numerator Denominator

2.1.3 Liquidity ratios

Liquidity ratio Numerator Denominator

Current ratio Current assets Current liabilities

Quick ratio Current assets - Inventory Current liabilities

Cash ratio Current assest - Inventory - receivables Current liabilities

Cash conversion cycle DOH+DSO-DPO

Table 5: Commonly used liquidity ratios

2.1.4 Solvency ratios

Solvency ratio Numerator Denominator

Debt to assets Total debt14 Total assets

Debt to capital Total debt Total capital15

Debt to equity Total debt Total shareholders’ equity

Financial leverage Average total assets Average total equity

Interest coverage EBIT Interest payments

Table 6: Commonly used solvency ratios

2.1.5 Profitability ratios

Solvency ratio Numerator Denominator