ii view: Dechra Pharmaceuticals shows its pedigree

The animal drug maker reported solid results, but are the shares now up with events?

Full-year results to 30 June  

• Revenue up 7% to £515 million
• Adjusted operating profit up 0.7% to £128 million
• Operating profit up 34% to £52 million
• Net debt down 44% to £128 million
• Final dividend up 8.5% to 24p per share 

Chief executive Ian Page said:

"I am pleased to report that Dechra has remained resilient throughout a challenging year. This is testament to our strategy, the strength of our product portfolio and through the innovation and dedication of our people. Our portfolio focus on prescription only medicines, our continued international expansion and the delivery of targeted acquisitions have ensured that we have, yet again, outperformed the market."

ii round-up:

Maker and supplier of veterinary drugs Dechra Pharmaceuticals (LSE:DPH) today reported gains in both sales and profits as it raised its final dividend by 8.5% to 24p per share. 

Dechra shares rose by more than 9% in UK trading and are up around 16% year-to-date. Shares in cancer drug focused AstraZeneca (LSE:AZN) are up 8% in 2020, while drug giant GlaxoSmithKline (LSE:GSK) shares are down by 16%.

Despite the global pandemic, most of the world’s veterinary practices had continued to operate. All of Dechra’s manufacturing, logistics and frontline laboratories stayed open. Sadly, its manufacturing and supply chain director Simon Francis died as a result of Covid-19. 

Sales of its companion animal products, generating around 70% of group sales, grew by just over 5% year-over-year, aided by the launch of Mirataz – used to treat undesired weight loss in cats. 

Food producing animal products, accounting for around 15% of sales, grew by a third given its acquisition of a Brazilian company. Equine products also expanded by 6% helped by an acquisition. 

Approvals to sell additional drugs over the year included two poultry vaccines, Marboquin antibiotic in the USA and Cosacthen for the diagnosis of Cushing's Disease. 

On a geographical basis, sales for its European (EU) business rose by 7.8%, while sales in North America grew by just over 5%. 

Accompanying management outlook comments pointed to encouraging recent trends although offered some caution given the ongoing pandemic. 

ii view:

Dechra is a specialist in the development, manufacture, marketing and sales of products used exclusively by vets worldwide. It believes its business is unique as the majority of its products are used to treat medical conditions for which there is no other effective solution or have a clinical or dosing advantage over competitor products.

During the year to the end of June, the US generated the biggest slug of sales at 35%, the rest of Europe next at around a third, Germany is the largest single country at approximately a tenth, while the UK and the rest of the world make up the balance. 

For investors, an estimated price/earnings (PE) ratio of over 30 does not scream value when compared to a 10-year average of around 25 and forward estimated PEs of 26 and 12 at AstraZeneca and Glaxo respectively. That said, Dechra does appear to offer defensive qualities with relatively little impact from Covid-19, while growth in the dividend payment remains ongoing. In all, the company appears to be at least worthy of current investor support. 

Positives: 

• Product and geographical diversity
• Defensive qualities

Negatives:

• Comparative high valuation
• Currency moves can impact

The average rating of stock market analysts:

Strong hold