Alliance Pharma addresses management issues

Life hasn’t been easy for Alliance Pharma (APH) recently after chief executive Peter Butterfield had to step away from the business for personal reasons after the Competition and Markets Authority (CMA) disclosed enforcement action against Alliance for breaches in competition law in medicines supply that could have led to his disqualification as a director. In the CMA’s initial judgement, Alliance will have to pay a fine of £7.9mn, although this is now subject to appeal. According to the CMA’s case timetable, the appeals against the judgement will be heard before the competition tribunal, with hearing dates in June, July and August. With no disqualification procedure immediately forthcoming, Mr Butterfield is free to begin a phased return to work.  

All in all, the company has faced massive distractions as well as coping with a management vacuum, which could explain its drifting performance on margins and costs. Gross margin reduced by 540 basis points to 59.1 per cent (2021: 64.5 per cent) as a less favourable product mix, with a lower proportion of Kelo-Cote and Amberen sales, contributed to the fall in profits. The company also saw an increase in finance costs as interest rates rose.   

Shareholders will take heart from the news that the board has addressed the day-to-day management issue by appointing Jeyan Heper in the newly created post of chief operating officer. Mr Heper is a management veteran who has served in senior positions at Proctor & Gamble, Danone and British American Tobacco.  

Broker Numis forecasts a 2023 price/earnings ratio of 11 for 2023 and expects Alliance to focus on higher-growth ecommerce in the US. That could mean the shares are priced for recovery, but we remain cautious. Hold.

Last IC view: Hold, 71p, 20 Sep 2022