Uniphar reports a strong upsurge in cash profits

Shares in Uniphar (UPR) have decreased in value by 18 per cent over the past 12 months, but have been retracing since the final quarter of 2023. The publication of its full-year figures for 2023 should go some way towards improving investor sentiment.

The Irish healthcare services group recorded growth across all divisions with cash profits 17.7 per cent to the good at €116mn (£99.4mn), reflecting the benefits of recent acquisitions and continued organic sales progress.

Performance has improved due to the successful integration of assets acquired in the prior year, including BModesto Group, Inspired Health and Orspec Pharma. This broad-based progress has enabled management to target a new medium-term cash profit target of €200mn.

The group has reorganised its divisional structure to exploit growth opportunities in its target markets more efficiently. The supply chain & retail segment delivered a 34.5 per cent increase in gross profits, or 5.9 per cent on an organic basis. The group’s pharma division reported modest organic sales growth by comparison, although the on-demand business performed well throughout the year.

The €50mn deal to acquire McCauley Pharmacy Group has significantly expanded Uniphar’s retail pharmacy network. But despite the step-up in M&A, a leverage ratio of 1.6 times isn’t overly burdensome, although it is perhaps telling that management is striving to boost cash conversion rates.

In a sense, it’s a transitional year as the impact of newly acquired assets and other investments has distorted comparisons with prior years to an extent. Return on capital employed decreased by 210 basis points to 15.2 per cent, but this was due to investments linked to a new high-tech distribution centre in Ireland, the benefits of which will take time to accrue.

A forward rating of 13 times consensus earnings isn’t expensive on either an historical or relative basis, but we will wait to see how efficiently the new assets perform over a longer timeframe. Hold.

Last IC View: Hold, 219p, 15 Sep 2023