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Dechra sees acquisitions boost sales

The veterinary pharmaceuticals company reported strong numbers and a positive update on the integration of recent acquisitions
September 5, 2016

The heavily consolidated veterinary market effectively shackles acquisition activity, according to Dechra Pharmaceuticals ' (DPH) chief executive Ian Page. That's why, when three acquisition opportunities came along within six months, the group's management saw fit to jump on them, even though that has stretched net debt to two times adjusted cash profit - the upper limit guided to shareholders.

IC TIP: Buy at 1349p

But Mr Page reassured that integration of the Genera, Brovel and Putney businesses is progressing smoothly. Genera, which has provided entry to the fast-growing poultry vaccines market, has been streamlined to improve efficiency, while Putney - the largest acquisition at £134m - has already achieved operating cost savings of over a third.

Previous concerns about the scale of the integration seem to have been quashed and Dechra's share price has been motoring in recent months, up another 5 per cent following these results. Granted, pre-tax profit was dented by the acquisitions, but adjusted numbers are very promising, with both revenue and adjusted operating profit up by over a fifth while underlying cash generation remains at over 100 per cent of operating profit.

The North American pharmaceuticals business performed particularly well, with like-for-like revenue up 38 per cent at constant currencies, thanks to product launches and a new operating subsidiary in Canada. Revenue was further boosted by Putney and Brovel, the latter of which has opened up Dechra's access to Latin America. The group is planning to launch several of its well-established products in Mexico within the next year.

The bulk of group turnover still comes from the European pharmaceuticals business, which on a like-for-like basis climbed a modest 6 per cent. However, shareholders will no doubt be pleased to see a return to growth in the antibiotics business, which had been struggling against a lower rate of prescriptions in much of Europe. The increased market penetration in Poland along with the launch of new products makes for an upbeat outlook in this business segment.

Broker Investec expects FY2017 adjusted pre-tax profit of £66.9m, giving adjusted EPS of 55.5p, up from £49.7m and 42.7p in the reported period.

 

DECHRA PHARMACEUTICALS (DPH)

ORD PRICE:1,349pMARKET VALUE:£1.25bn
TOUCH:1,345-1,352p12-MONTH HIGH:1,423pLOW: 811p
DIVIDEND YIELD:1%PE RATIO:96
NET ASSET VALUE:296p*NET DEBT42%

Year to 30 JunTurnover (£m)Pre-tax profit (£m)Earnings per share (p)Dividend per share (p)
20121246.15.212.2
201318912.512.514.0
201419421.422.215.4
201520325.822.116.9
201624814.514.018.5
% change+22-44-37+9

Ex-div: 27 Oct

Payment: 18 Nov

*Includes intangible assets of £360m, or 388p a share