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.
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: | 3,054p | MARKET VALUE: | £3.14bn | |
TOUCH: | 3,048-3,062p | 12-MONTH HIGH: | 3,080p | LOW: 1,992p |
DIVIDEND YIELD: | 1% | PE RATIO: | 101 | |
NET ASSET VALUE: | 496p* | NET DEBT: | 45% |
Year to 30 June | Turnover (£bn) | Pre-tax profit (£m) | Earnings per share (p) | Dividend per share (p) |
2015 | 203 | 25.8 | 22.1 | 16.9 |
2016 | 248 | 14.5 | 14.0 | 18.5 |
2017 | 359 | 28.6 | 28.1 | 21.4 |
2018 | 407 | 28.9 | 37.2 | 25.5 |
2019 | 482 | 27.8 | 30.2 | 31.6 |
% change | +18 | -4 | -19 | +24 |
Ex-div: | 24 Oct | |||
Payment: | 15 Nov | |||
*Includes intangible assets of £687m, or 669p a share |