ii view: animal medicines group Dechra stays optimistic

Both product and geographical diversity are being added to with bolt-on acquisitions. Buy, sell, or hold?

First-half results to 31 December  

• Currency adjusted revenue up 15.9% to £332.4 million
• Adjusted operating profit up 22% to £93.9 million
• Interim dividend up 8% to 12p per share

Chief executive Ian Page said:

“Future prospects remain excellent as we strengthen the group's infrastructure, continue to outperform markets and identify and deliver new strategic growth opportunities.”

ii round-up:

Veterinary drug and animal products maker Dechra Pharmaceuticals (LSE:DPH) today delivered growth in both sales and the dividend as pet owners under the pandemic continued to spend more time and cash on their animals.

Currency adjusted first-half sales grew 15.9% to £332.4 million, helping adjusted operating profit to expand by just over a fifth to £93.9 million. An 8% increase in the interim dividend to 12p per share was declared. 

Dechra shares rose marginally in UK trading having already gained by more than 55% since pandemic-induced market lows in March 2020. Shares for Covid-19 vaccine maker AstraZeneca (LSE:AZN) are up by close to a third during that time, while shares for generic drug specialist Hikma Pharmaceuticals (LSE:HIK) have gained by 16%. 

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Geographically, North American sales at Dechra led the way, climbing 26% compared to just over 10% for its European business. 

On a product basis, sales for its biggest product category, Companion Animal Products (CAP), grew 17% year-over-year to £245.5 million, aided by sales in topical dermatology and anti-infectives. 

Sales for Food Products rose 12% to £39.2 million, with sales of its equine-related items jumping 10% to £24.1 million. Revenue for its small but specialist and non-pharmaceutical Nutrition business rose by over a fifth to £18.4 million.  

Bolt-on acquisitions contributed just over £5 million to sales during the half-year period. Most of these acquisitions were made in the US, largely adding to its equine product portfolio. 

Accompanying outlook comments from the constituent of the FTSE 100 index point to ‘strong’ trading during the start of the second half, helped by a return to historic levels of growth as economies normalise following the diminishing influence of the pandemic. 

Full-year results to the end of June are likely in early September. 

ii view:

Dechra is a specialist in the development, manufacture, marketing and sales of products used exclusively by vets worldwide. Companion animal products generate its biggest slug of sales at around 74% of the overall total, followed by food products at 12%, equine products at 7% and nutrition the balance. 

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 focus on prescription-only medicines. It also continues to expand internationally with targeted acquisitions. 

For investors, costs generally across business and industry are rising. Supply chain challenges in general remain and uncertainty in relation to both the pandemic and the global economy should not be forgotten. But trading momentum for now remains in Dechra’s favour and animal welfare concerns are likely to expand globally over the long term. As for the dividend, while the yield is not particularly attractive at under 1.5%, on both a historic and forecast basis, annual growth for more than 15 years consecutively is worth remembering. In all, and while some caution looks sensible given the pandemic push, room for continued long-term optimism arguably persists. 

Positives: 

• Product and geographical diversity
• Progressive dividend policy

Negatives:

• Pandemic and economic outlook uncertainty
• Currency moves can impact

The average rating of stock market analysts:

Strong hold