Animalcare solidifies progress on margins

The boom in pet ownership during the pandemic has manifested in stronger sales and profit margins for Animalcare’s (ANCR) veterinary medicines in 2021. The shares rose by 4 per cent on the morning of the results, reversing this year’s vet sector sell-off that has also affected rivals CVS (CVSG) and Dechra Pharmaceuticals (DPH). 

The animal pharma firm said early 2022 sales have been in line with expectations, but it expected a “more even balance between the first and second halves” over the year after the post-pandemic recovery drove bumper first-quarter sales in 2021.

Animalcare has been cutting its roster to include a smaller number of higher margin, higher selling products, with investment focused on its growth markets, companion animals and equine. The strategy appears to be paying off, with underlying Ebitda margins rising to 18.2 per cent in 2021, from 17.2 per cent in the previous year.

Companion animals, which accounted for two-thirds of revenues in 2021, drove growth with 14.5 per cent higher sales of £51.3mn. This included £1.2mn of new sales from Animalcare’s osteoarthritis pain treatment for dogs, Daxocox, which launched in the second half. Meanwhile, the production animals segment – mostly farm animals – declined by 13.9 per cent as the firm discontinued legacy antibiotics contracts and lower margin products.

Mike Mitchell, equity analyst at Panmure Gordon, wrote that Animalcare’s “strategic positioning, strength and consistency of delivery to date, and the future opportunities” warrant a 15 per cent valuation premium to sector peers. The broker recommended a ‘buy’, albeit cut its target price to 447p from 470p.

There is a decent pipeline of growth opportunities, including the first products from its joint venture with Kane Biotech which are "soon to hit the market", and an early-stage R&D agreement with Orthros Medical over antibody treatments for canine osteoarthritis, announced in March. 

A flying start for the Daxocox launch provides an encouraging runway for 2022, although the firm will have to watch costs to prevent inflation from eating into its margin gains. Buy.

Last IC View: Hold, 430p, Sep 28 2021.