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Rapid integration aids Dechra Pharma

Successful asset integrations have boosted performance ahead of expectations
September 2, 2019

A few days prior to release of its full-year results, Dechra Pharmaceuticals (DPH) announced that it had snapped up veterinary contract manufacturer Ampharmco LLC for around $30m (£24.6m). The deal for Texas-based Ampharmco will enable Dechra to bring manufacturing in-house for several products currently dependent on third-party sourcing.

IC TIP: Hold at 3,054p

You get some idea of why this is potentially beneficial for margins when you consider that the 18.7 per cent constant-currency revenue growth in the animal health group’s European pharmaceuticals segment falls to a rate of 7.8 per cent excluding third-party contract manufacturing and acquisitions.

Increased penetration for proprietary brands such as Vetoryl and Zycortal boosted performance in the lucrative North American market, while last year’s £34.8m deal to acquire Laboratorios Vencofarma do Brasil forms part of a strategy to expand in one of the world’s largest markets for food producing animal products.

The integration process for recently acquired assets has proceeded more rapidly than management had anticipated, contributing to a 200 basis point increase in the gross margin, but it’s reasonable to assume this will be bolstered further as more production is brought in-house.

With acquisitive growth comes the non-cash effect of amortisation, but strip this out and underlying operating profit was up 28 per cent to £127m. And despite supply chain issues and irregular inventory movements linked to Brexit preparations, a reduction in working capital commitments meant the group’s cash conversion rate increased to 85 per cent.

Stifel is guiding for adjusted EPS of 98.58p for the June 2020 year-end, rising to 112.12p in FY2021.

DECHRA PHARMACEUTICALS (DPH)  
ORD PRICE:3,054pMARKET VALUE:£3.14bn
TOUCH:3,048-3,062p12-MONTH HIGH:3,080pLOW: 1,992p
DIVIDEND YIELD:1%PE RATIO:101
NET ASSET VALUE:496p*NET DEBT:45%
Year to 30 JuneTurnover (£bn)Pre-tax profit (£m)Earnings per share (p)Dividend per share (p)
201520325.822.116.9
201624814.514.018.5
201735928.628.121.4
201840728.937.225.5
201948227.830.231.6
% change+18-4-19+24
Ex-div:24 Oct   
Payment:15 Nov   
*Includes intangible assets of £687m, or 669p a share