The coronavirus outbreak has highlighted how reliant western businesses are on Asian supply chains. Dechra Pharmaceuticals (DPH) provides a case in point. The veterinary products group doesn’t generate any direct or indirect revenue from China, but a “prolonged period of interruption” would see its own stocks dwindle. There is sufficient inventory to meet near-term demand, but much will depend on how rapidly normal commercial activity resumes in the affected provinces in China.
Supply issues adversely affected trading in the group's first quarter, long before the outbreak began. Though most of the problems have already been ironed-out, the group’s sterile ophthalmic product lines are not expected to be back in supply until the next financial year.
Contract manufacturing and third-party sourcing have been central to the group’s business model, but they can render companies vulnerable to production issues beyond their control. So, even though group sales were on the up, supply issues affecting companion animal products fed through to a 170-basis point reduction in the operating margin to 24.6 per cent. There are moves to gain greater control of the manufacturing process, hence last year’s deal to acquire veterinary contract manufacturer Ampharmco.
Consensus forecasts collated by Bloomberg give revenue of £524m for the June year-end, with adjusted EPS of 94.1p, rising to £579m and 110p in FY2021.
| DECHRA PHARMACEUTICALS (DPH) | ||||
| ORD PRICE: | 2,736p | MARKET VALUE: | £2.82bn | |
| TOUCH: | 2,736-2,748p | 12-MONTH HIGH: | 3,090p | LOW: 2,336p |
| DIVIDEND YIELD: | 1.0% | PE RATIO: | 98 | |
| NET ASSET VALUE: | 463p* | NET DEBT: | 50%† | |
| Half-year to 31 Dec | Turnover (£m) | Pre-tax profit (£m) | Earnings per share (p) | Dividend per share (p) |
| 2018 | 231 | 9.00 | 15.1 | 9.50 |
| 2019 | 249 | 19.5 | 12.9 | 10.29 |
| % change | +7 | +117 | -15 | +8 |
| Ex-div: | 5 Mar | |||
| Payment: | 8 Apr | |||
| *Includes intangible assets of £639m, or 621p a share. †Includes IFRS 16 lease liabilities of £13m. | ||||
