No-Deal Brexit Will Have a Direct Impact on This Canadian Stock

Advanz Pharma Corp’s (TSX:ADVZ) sales are heavily exposed to Britain’s economy. A messy Brexit could have a direct impact, according to Vishesh Raisinghani.

Britain’s decision to exit the European Union (EU) will forever change the economic and social landscape of the country. Two years after the public referendum was completed, there is still little clarity over the future relationship between the United Kingdom and the bloc of 27 EU nations.  

As we enter the end-game of these negotiations, it is apparent that the impact of the exit will be felt across the globe. The UK is, after all, Canada’s third largest trading partner after China and the US. Commonwealth trade agreements enhance this relationship further. It’s fair to say that some Canadian businesses will suffer should the divorce turn messy.

One such business is Mississauga-based pharmaceutical company Advanz Pharma Corp (TSX:ADVZ). Formerly known as Concordia Healthcare Corp, Advanz develops, acquires, or licenses niche established medicines and markets them in over 90 countries.

The company’s portfolio of medical products include 200 niche generic and branded medicines for endocrinology, ophthalmology, urology, anti-infectives, pain management, central nervous system disorders and intensive care treatment.

While the company is well-diversified geographically and commercially, its core operations are significantly exposed to British politics and economics. For one, Advanz’s operational headquarters is located in London. That’s because Britain is a key market for the company’s products.

According to their latest filing – “ADVANZ  PHARMA International has significant operations  within the U.K. and other parts of the EU.”

In fact, the company states that Britain is the largest pharmaceutical market in Europe. The country’s demographics, regulatory environment, intrinsic demand for off-patent medicines, and steady population growth make it an essential market for the Advanz’s operations.

The vast majority of Advanz’s sales last year were international. In 2018, sales across North America accounted for only 25% of the total. While the company doesn’t break out sales by regions, there is reason to believe sales in the UK account for a significant portion of the total.

In its latest filing, the company said that “market share erosion in the UK market,” was a primary reason for a US$79 million decrease in revenue last year. This decline was partially offset by a US$17 million increase in revenue as a result of the Great British Pound (GBP) strengthening against the United States Dollar (USD) in the first half of 2018.

In fact, the company’s GBP hedging strategy yielded $29 million in other comprehensive income’ in 2018 and lost $50 million in 2017. In other words, the hedging strategy alone accounted for roughly 8% of the company’s gross profit last year.

Finally, the company’s sales and profits have been steadily declining since 2016, right after the referendum.

It is currently undergoing a corporate reorganization that changes the business structure substantially, so I’m not sure what the company’s core prospects are over the long-term. However, the stock seems like an ideal short-term bet on the Brexit outcome over the next few months.

Bottom line

Advanz Pharma is a multinational pharmaceutical company that is overexposed to the UK market. For traders willing to bet on the outcome of Brexit negotiations and the value of the pound over the next few months, ADVZ may be an ideal proxy.   

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Fool contributor Vishesh Raisinghani has no position in any stocks mentioned. 

More on Investing

A data center engineer works on a laptop at a server farm.
Tech Stocks

3 No-Brainer Data Centre Stocks to Buy With $500 Right Now

Data centres are going to be a huge growth opportunity in the next decade. And these are the top buys.

Read more »

Paper Canadian currency of various denominations
Bank Stocks

1 Magnificent Canadian Dividend Stock Down 28% to Buy and Hold for Decades

This top Canadian dividend stock is underperforming its large peers this year, but a turnaround could be on the horizon.

Read more »

TFSA (Tax-Free Savings Account) on wooden blocks and Canadian one hundred dollar bills.
Dividend Stocks

Where to Invest Your $7,000 TFSA Contribution

The TFSA is attractive for investors who want to generate tax-free passive income.

Read more »

The TFSA is a powerful savings vehicle for Canadians who are saving for retirement.
Dividend Stocks

TFSA Investors: 3 Dividend Stocks Worth Holding Forever

These TSX stocks have the potential to grow their dividends over the next decade, making them top investments for TFSA…

Read more »

hand stacks coins
Investing

Secure a Wealthy Future With These 3 Canadian Stocks

These Canadian stocks have the potential to appreciate substantially over time and may also enhance returns through dividend payments.

Read more »

Tractor spraying a field of wheat
Dividend Stocks

Is Nutrien Stock a Buy for its Dividend Yield?

Nutrien is down more than 50% form the 2022 highs. Is NTR stock now oversold?

Read more »

analyze data
Investing

3 Blue-Chip Stocks Every Canadian Should Own

These blue-chip stocks are backed by large-cap companies with well-established businesses, solid fundamentals, and a growing earnings base.

Read more »

dividends grow over time
Stocks for Beginners

The Smartest Growth Stock to Buy With $2,000 Right Now

Do you have $2,000 to invest for the long term? These three TSX stocks have and will continue to deliver…

Read more »