Uniphar looks promising

Investors have generally been well treated when it comes to specialist Irish supply chain companies. For example, long-term investors in United Drug were finally rewarded with a €3.15bn (£2.6bn) private equity-backed takeover in 2021 after the company spent years patiently building its medicines distribution and pharmacy business in the Republic. The timing of the deal looked like a top-of-the-morning bullseye. The success of the buyout prompts us to have to look in greater depth at what other opportunities might await investors who have an interest in specialist businesses. The result was to take a first time look at Irish distributor Uniphar (UPR) as a promising company with an interesting niche in an established market.

Uniphar specialises in distribution and logistics for medicines manufacturers, taking advantage of the outsourcing contracts for distribution that are now prevalent in the sector. In short, Uniphar moves items that need special licences along a tightly controlled supply chain. The business has been built by expansion into new areas. Post-period, the company completed the acquisition of Australian medicines supplier Orspec, which focuses on the Asia-Pacific region. Acquisitions also explain the generally high-for-the-sector return on capital employed of over 16 per cent.

One area of concern for Uniphar will be rising cost inflation in all parts of the supply chain and management said the priority was to maintain margins. Selling and distribution costs were up by 17 per cent during the half. If management can keep on top of these, then the consensus forecast price/earnings ratio of 18 looks defensive. Hold.

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