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UDG continue to deliver the goods

The company has positioned itself well in the growing pharmaceutical outsourcing market
May 23, 2017

It's tough to find fault in these half-year results from UDG Healthcare (UDG). The group's strategy to consolidate the highly fragmented pharmaceutical outsourcing market has served it well, sending operating profits up by a fifth at constant currencies. But even stripping out first time contributions from recent acquisitions, growth was still impressive, with like-for-like revenue and operating profits both up 8 per cent.

IC TIP: Buy at 803p

The most recent acquisition – STEM – has boosted the Ashfield communications division, which otherwise would have reported a revenue decline. Overall, Ashfield reported double digit net revenue growth and an improvement in operating margins as it increased its digital capabilities. In the second half, this division should be helped further by the acquisition of call centre specialist Sellxpert, a deal which is currently awaiting regulatory approval.

Meanwhile, packaging division Sharp has needed to expand to cope with higher demand. In the US and UK, UDG is planning to spend a total of $23m (£18m) on expanding its manufacturing sites, and it's hoped the extra space will keep it going until 2020.

Broker Numis expects these investments to boost group profits to $113m in the year to September 2017, giving EPS of 34.6ȼ (FY2016: $102m and 32ȼ). However, those forecasts exclude any future acquisitions. With more than $90m of net cash on the balance sheet, we expect further deal announcements before the year is out, too.

UDG (UDG)

ORD PRICE:803pMARKET VALUE:£1.99bn
TOUCH:802.5-804p12-MONTH HIGH:811pLOW: 519p
DIVIDEND YIELD:1.3%PE RATIO:35
NET ASSET VALUE:330ȼ*NET CASH:$91.1m

Half-year to 31 MarTurnover ($m)Pre-tax profit ($m)Earnings per share (ȼ)Dividend per share (ȼ)
2016 (restated**)53835.410.53.41
201757940.912.53.58
% change+8+15+19+5

Ex-div: 1 Jun

Payment: 27 Jun

*Includes intangible assets of $590m, or 238ȼ a share

**Restated to account for change in reported currency £1=$1.3