Alliance Pharma rebounding after Shanghai lockdown hits sales

To say that this year’s news cycle has been fast moving is something of an understatement. One could be forgiven for thinking years had already passed since supply chain snarl-ups and jammed ports were making headlines. But for companies exposed to Shanghai’s Covid lockdown, which ended in June, supply issues are still rippling through their accounts.

Consumer and prescription medicines company Alliance Pharma (APH) recently reported a slightly lower pre-tax profit figure for the first half of this year because of Shanghai-linked disruption. The company also said it remains on track to meet market expectations for full-year financial performance. However, brokers aren't so sure. While Liberum analysts called Alliance’s first-half performance “resilient”, they also reduced revenue and pre-tax profit estimates by 2 per cent and 1 per cent, respectively.

According to management, several large distributor orders in the fourth quarter (Q4) will improve the full-year picture, though the timing of these orders is dependent on the rate of recovery in the markets concerned. Liberum analysts say that Q4 sales of Alliance’s kelo-cote scar treatments in China will be key to meeting expectations. Lockdowns prevented the product from entering the country for a number of months, though the company said demand recovered in July as restrictions eased.

Meanwhile, the company’s prescription medicines division (which accounts for less than half of total sales) maintained revenue at £24.1mn year on year. Key drivers behind the stable figure include eczema treatment hydromol, for which the company negotiated a price increase, and the vitamin supplement Forceval. The latter gained market share within the UK’s national health service following a campaign by the company to raise awareness and educate clinicians about how the supplement can treat malnutrition.  

Anyone watching Alliance’s shares in recent weeks will have noted a significant price drop. This is because the Competition and Markets Authority (CMA) is seeking director disqualification for the firm’s chief executive, Peter Butterfield, over alleged anti-competitive practices in the sale of prescription anti-nausea tablets. Alliance has refuted the claims and said that Butterfield retains the full support of the board in the top job.

“We believe the 35 per cent decline in the share price since July’s update is more than priced in, particularly for a business that is fundamentally still delivering and moving towards a commendable full-year performance,” wrote Liberum analysts in a note. Though the shares might look relatively cheap at present (trading on a 10 times EV/Ebitda multiple), we think an uncomfortable amount of uncertainty remains. Hold.

Last IC View: Hold, 116p, 22 March 2022