Uniphar vows to double its cash profits

Uniphar (UPR) is a medical logistics distribution company. It ships medical products from manufacturers to hospitals and pharmacies, like any distribution business, it is capital intensive and requires investment for expansion.

It is therefore impressive that it is targeting a return on capital employed (ROCE) of between 12 per cent and 15 per cent. In the six months to June, its 12-month rolling ROCE was 14.7 per cent, a drop from 17.3 per cent in December, but still at the top end of its range. This fall reflected recent acquisitions and investment in “strategic capital expenditure”.

Uniphar is spending on both improved IT infrastructure and distribution capabilities. It also acquired Ireland's McCauley Pharmacy Group. The firm will ultimately need to keep investing if it wants to hit its ambitious medium-term target of growing cash profit (Ebitda) to €200mn (£171.49mn), a figure that would be double last year's performance.

The problem is generating this cash profit will be easier that generating cash flow. This is because rising interest rates will increase finance costs (which are excluded from cash profit calculations). The group has quite a lot of debt and finance costs doubled to €9.6mn year on year. As a result, profit before tax shrank 10 per cent while operating profit rose 12 per cent.

Broker Numis currently has the company trading on a 2024 price to earnings ratio of 14. It is forecasting consistent double-digit cash profit growth which is promising, but we are a little concerned about the finance cost headwinds. Stick to hold.

Last IC View: Hold, 396p, 28 Feb 2023