Huntsworth hunting growth

This is, ostensibly, excellent news for pharmaceuticals companies. But it’s a competitive arena, which means skilful marketing is essential.

Communications consultancy Huntsworth (HNT) has been increasingly focusing on healthcare services, facilitated by a rash of recent acquisitions. The deals have also helped to bolster the group’s footprint across the pond, with half of revenues now derived from the world’s largest healthcare market.

In 2018, hearty top-line growth was outpaced by earnings momentum as the group kept a tight hold on costs and took on higher-quality work. Indeed, while reported revenues (adjusted for costs passed directly to customers) rose by 14 per cent to £225m, the operating margin climbed from 12.6 per cent to 13.4 per cent with operating profits up 26 per cent at £33.2m.

Despite the progress, the share price performance has been weak. This is not without some cause. Like-for-like sales in 2018 were a rather less remarkable 1.4 per cent. The low-margin, non-health communications business experienced a 5 per cent fall in sales to £73m, but should benefit this year from "rightsizing". Some encouragement can be taken from a 6 per cent combined increase from Huntsworth’s three healthcare divisions.

However, Huntsworth’s largest division, marketing (36 per cent of group sales and 49 per cent of profit), which markets prescription drugs directly to patients, has endured a more difficult time. Like-for-like revenues here dropped 3.2 per cent, after tricky comparatives were exacerbated by delayed client spending, drug failures and the loss of some drug mandates. That said, acquisitions helped push overall sales up 12 per cent while profits jumped from £15.5m to £20m.

The balance sheet has also been a cause for reflection, with net debt rising from £36m to £77m following last year's deal frenzy. The company tapped shareholders for £18m with a placing at 113.5p last September to help fund its buying spree, with the net cash outflow from acquisitions during the year coming in at £67m. The fact that the three businesses it bought during the year did not contribute a full year's worth of revenue goes some way to explaining a jump in trade debtors (amounts owed to the company) to sales to an eye-catching 36 per cent. This ratio of debtors to sales has been steadily rising over the last five years from 25 per cent in 2014.