Despite strong results, shares in Dechra Pharmaceuticals slide as the veterinary group seeks expansion and a South Korean subsidiary
- Dechra Pharmaceuticals reported solid annual results
- The veterinary medicine group saw sales rise 13.8% to £681.8 million
Dechra Pharmaceuticals has released solid annual results as it announced spending of almost £400m on summer acquisitions and announced a new South Korean subsidiary.
The FTSE 100-listed veterinary medicine group reported a 13.8 per cent increase in sales to £681.8m for the year to 30 June, up from £608m a year earlier.
Underlying operating profits rose 9.4 per cent to £174.3m while underlying profits were 9.2 per cent higher than a year ago at £190.6m.
On the up: Dechra Pharmaceuticals stock price is up sharply today
Ian Page, Group President, said: “We have continued to make progress on all aspects of our strategy; The product development pipeline was strengthened, material acquisitions were completed after the year-end and a new subsidiary was established in South Korea as we continue our geographic expansion.’
The group’s adjusted diluted earnings per share rose 14 percent to 120.8 pence and Dechra increased its full-year dividend by 10.8 percent to 44.89 pence.
The company cited “strong organic growth” across all of its key markets and all of its therapeutic segments as driving its improved performance.
Last week Dechra completed its second major acquisition of the year, buying US drugmaker Med-Pharmex for £220m.
The acquisition of the California-based company is intended to strengthen Dechra’s manufacturing facilities in North America. The US is currently the world’s largest animal health market.
Back in July, Dechra completed its £175m acquisition of US healthcare company Piedmont, bringing in two products expected to launch between 2024 and 2025 with an expected peak sales potential of at least £34m.
Looking ahead, Mr Page said: “As the market returns to normal trading levels following the impact of Covid-19 and current macroeconomic uncertainties are expected to persist, the veterinary pharmaceuticals market, particularly in the CAP sector, is resilient and growing .
‘The acquisition of Med-Pharmex after the end of the year strategically strengthens our position in the US market. The acquisition of Piedmont adds several exciting new products to our development pipeline and we continue to identify new opportunities as we successfully execute on our strategy.
‘We remain confident in our ability to outperform the markets in which we operate and in the prospects for the current fiscal year.’
Despite the strong performance, Dechra shares fell sharply, falling 10.01 percent or 350.00p to 3,146.00p this afternoon.
Victoria Scholar, Head of Investment at Interactive Investor, said: “Dechra has been an outperformer during the pandemic thanks to strong demand for pets and pet-related services.
“However, like many publicly traded companies, 2022 has been significantly more challenging as the stock has lost more than a third of its value since the peak.
‘The company’s fundamentals remain robust and there are no sell recommendations for the stock from the analyst community. But the macroeconomic challenges of inflation and recession risk combined with the backdrop of volatile financial markets suggest the road ahead remains bumpy.’
Adam Vettese, Analyst at eToro said, “The Dechra Pharmaceuticals business model is holding up well amid rising inflation, lower consumer spending and a one-off squeeze on household incomes.”
He added, “While Dechra’s leads are strong and the outlook looks positive, the share price remains in the doldrums and is now more than 30 percent below where it started the year. We believe this is primarily related to valuation concerns. The company is currently trading at a price-to-earnings ratio of more than 50, compared to around 14 for the rest of the FTSE 100.
‘While Dechra’s steady growth might be enough to tempt some people to buy its shares, its high valuation could put many investors off.’
Stifel analyst Max Herrmann said: “FY23 got off to a busy start with the acquisitions of Piedmont Animal Health for $210 million and Med-Pharmex for $260 million.
‘These acquisitions, combined with inflationary pressures, are expected to impact profitability in FY23 somewhat more than we originally anticipated and we are therefore lowering our adjusted figure. EPS forecasts by about 5 percent. With the shares trading at a discount of 18 percent to Zoetis based on CY22 P/E, we continue to see good value in the deal. repeat purchase.’
