ii view: animal drugs firm Dechra has another record year

Shares for this specialist pharma company are down around 30% year-to-date. Buy, sell, or hold? 

Full-year trading update to 30 June

• Currency adjusted revenue up 14%

Chief executive Ian Page said:

"We are delighted that the financial year just ended was another record year for Dechra and in line with expectations, with Group revenue growth slowing to more normal levels as expected in H2 as the impact of the pandemic on our markets unwinds. Whilst we expect current macroeconomic uncertainties to continue, the veterinary pharmaceutical market remains resilient and in growth.”

ii round-up:

Veterinary drug and animal products maker Dechra Pharmaceuticals (LSE:DPH) today flagged another record year in line with management’s own forecasts. 

Currency adjusted revenue for the year to the end of June rose by 14%, or 12% when taking in exchange rate movements. The FTSE 100 index listed company pointed to excellent year on year organic revenue growth, supplemented by previously announced product acquisitions.

Dechra shares fell around 1% in UK trading having come into this latest announcement down by almost 30% year-to-date. Shares for generic medicines maker Hikma Pharmaceuticals (LSE:HIK) are down by almost a quarter during 2022, while GSK (LSE:GSK), which is in the process of demerging its consumer healthcare business, is up around 8%. 

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Dechra previously proved something of a pandemic winner as pet ownership increased under Covid lockdowns and owners spent more time and cash on their animals.

Management highlighted that its cost base had normalised as expected over the year given reduced pandemic restrictions, and had increased further due to global inflationary pressures, which management believes it is well placed to manage. 

European pharmaceutical revenues grew 8% year-over-year, while North American pharmaceutical revenues surged 24%, aided by contributions from various product rights acquisitions made during the year.

Full-year results are scheduled for 5 September.

ii view:

Dechra was started in 1997 and is today a specialist in the development, manufacture, marketing and sales of products used exclusively by vets worldwide. Headquartered in Cheshire, it employs over 1,500 people. Geographically, it operates through the two divisions of the EU and North America, with the EU generating around two-thirds of sales and North America the balance. Its portfolio of products focuses on prescription only medicines. It also continues to expand internationally with targeted acquisitions. 

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For investors, costs generally across business and industry are rising. Supply chain challenges in general are ongoing and uncertainty in relation to the global economy and a consumer cost-of-living crisis cannot be forgotten. A forecast one-year price/earnings (PE) ratio above the 10-year average also suggests the shares are not obviously cheap. 

However, sales gains continue to be made with further acquisition opportunities being assessed. The dividend, although not a key attraction given an forecast yield of just over 1%, has at least been increased more than 15 years in a row, while global animal welfare concerns are likely to keep on growing. On balance, and while some caution looks sensible given a pandemic push, grounds for longer-term optimism look to remain. 

Positives: 

• Product and geographical diversity
• Progressive dividend policy

Negatives:

• Uncertain economic outlook
• Currency moves can impact

The average rating of stock market analysts:

Buy