It wasn’t the content in UDG Healthcare’s (UDG) full-year results which caused the shares to stumble, but the outlook. After spending $270m (£203m) on six acquisitions in the year to September 2017, investors had been hoping for an earnings upgrade for the year ahead. Instead management warned that higher costs in the Ashfield communications division would delay organic growth until the second half of the year.
UDG is another victim of an extraordinarily high valuation. The shares climbed more than 50 per cent between their February low and November peak due to excitement about the fast-growing pharma outsourcing market and UDG’s strategic positioning. Now, with a forward price-earnings ratio of 25 times, investors are very unforgiving of mistakes.
But in many ways, the shares deserve this rating. In the 2017 financial year, adjusted operating profits grew 17 per cent at constant currencies to $129m (£97.3m), driven by a 13 per cent increase in net revenues in the dominant Ashfield division and margin improvements in the Sharp pharmaceutical packaging business.
And yet, underlying operating profit growth slowed to 5 per cent at both Ashfield and at Sharp’s US business (together 95 per cent of total operating profits) due to ongoing restructuring costs. Broker Numis has therefore retained its earnings forecast for the year to September 2018 at 43.4ȼ (from 37.1ȼ in FY2017), derived from adjusted pre-tax profit of $142m.
| UDG HEALTHCARE (UDG) | ||||
| ORD PRICE: | 827p | MARKET VALUE: | £20.5bn | |
| TOUCH: | 827-828p | 12-MONTH HIGH: | 963p | LOW: 633p |
| DIVIDEND YIELD: | 1.2% | PE RATIO: | 38 | |
| NET ASSET VALUE: | 355ȼ* | NET DEBT | 6% | |
| Year to 30 Sep | Turnover (€bn) | Pre-tax profit (€m) | Earnings per share (ȼ) | Dividend per share (ȼ) |
| 2013 | 2.03 | 33.8 | 11.5 | 9.6 |
| 2014 | 0.76 | 108 | 40.4 | 10.1 |
| 2015 | 0.92 | 53.6 | 16.2 | 11.0 |
| Year to 30 Sep | Turnover ($bn) | Pre-tax ($m) | Earnings per share (ȼ) | Dividend per share (ȼ) |
| 2016 (restated) | 1.08 | 83.5 | 27.6 | 12.5 |
| 2017 | 1.22 | 92.8 | 29.0 | 13.3 |
| % change | +13 | +11 | +5 | +7 |
| Ex-div: | 11 Jan | |||
| Payment: | 5 Feb | |||
| *Includes intangible assets of $770m, or 310ȼ a share £1=$1.33 | ||||
