Uniphar boosted by acquisitions

We had a first look at Dublin-based healthcare services business Uniphar (UPR), which is a purveyor of distribution and logistics services for pharma and medical technology manufacturers, last August. We took a favourable view of the company’s niche position and return on capital employed (ROCE) but highlighted the risk of rising cost pressures.

Six months on, the full-year postings have solidified our position. Investors marked up the shares by 5 per cent on results day after the unveiling of solid figures, underpinned by some vigorous metrics.

RBC Capital Markets analysts pointed to Uniphar’s “strong cash conversion”. The company posted an 83 per cent free cash flow conversion in the year, well ahead of management’s medium-term target of 60 to 70 per cent. 

And we still like the return on capital employed position. While this fell by 30 basis points to 17.3 per cent compared with last year, this is an attractive level for the sector and is (again) above management’s target range. 

Revenues passed the €2bn (£1.8bn) threshold, with uplifts across all three divisions. Organic growth and acquisitions – the company picked up three businesses in the year and completed a fourth transaction last month – drove cash profits up by 13 per cent. So far, so good. 

But cost pressures remain evident. Admin expenses and selling and distribution costs jumped by a combined 11 per cent to £71mn. Not a jaw-dropping rise in this inflationary environment, but still significant. Still, there were positive signs here – both the gross and operating margins rose.

City analysts value the shares at a consensus 17 times forward earnings, according to FactSet. This looks undemanding for a company that is on track to double cash profits next year against 2018 levels. Hold.

Last IC view: Hold, 286p, 30 Aug 2022