Alliance Pharma bullish on second-half growth

For the second year in a row, Alliance Pharma (APH) is relying on a strong second half to drive growth following six hit-and-miss months. The group is still in the process of steadying itself after a few quarters of disruption both within the organisation and in its key markets. 

Last year was marred by Covid-19 lockdowns in China. The country important revenue driver for the company, which is best known for its Kelo-cote scar prevention franchise. Although pandemic-linked headwinds eased in the first half of 2023, there were lingering problems via destocking by a cross-border distributor to China. 

Alliance also saw some manufacturing delays in the first half due to what it describes as “regulatory issues” with some of its suppliers. The group says both of these issues will be resolved in the second half. Management is also hoping to drive group leverage below two times by year end. Net debt decreased by £7.5mn (to a total of £94.5mn) in the first half, taking leverage to 2.7 times.

The shares are down 19 per cent in the past 12 months, and they’re unlikely to rebound until the Competition and Markets Authority (CMA) has announced the outcome of an ongoing investigation into Alliance. Last year, the competition regulator fined the company – plus three others – a total of £35mn in relation to an arrangement that saw a competitor paid to withhold the launch of a new drug.

Alliance has appealed the decision, and expects an update on the case by year-end. FactSet broker consensus sees the shares trading at just 10.5 times forward earnings for the full year. This is undoubtedly an attractive valuation – but we think the question marks around the company’s financial future are still too large to be ignored. Hold.