City round-up: Dechra Pharmaceuticals

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Analysts from investment bank Panmure Gordon maintained their ‘Buy’ call on Dechra Pharmaceuticals stock this morning after it announced half year results for the six months to December 31, 2022, and warned underlying operating profits for the year will be at the lower end of analyst expectations.

The Northwich-based vet products group achieved revenues of £377.4m, which compared with £332.4m, although pre-tax profits dropped from £53.4m a year ago to £29.7m. Shareholders will receive a 12.5p per share dividend, an improvement on the 12p figure last year.

International pharmaceuticals revenue declined nine per cent at constant exchange rates, reflecting the impact of no revenue being generated in South Korea while the group established its own sales and marketing business unit and the change of nutrition distribution partner in Japan, which also impacted profits..

These were also subject to the impact of acquisition and integration costs and cloud computing arrangement costs.

Chief executive, Ian Page, said: “I am pleased with our performance in the first half of our financial year.

“We have a strong history of delivering organic growth, a proven ability in well executed acquisitions and a stronger than ever product pipeline, which, together with the historical resilience of the animal healthcare market, leaves us well positioned to deliver sustained future growth.”

Looking ahead, the group said trading patterns at the start of 2023 have been unpredictable in the US, where wholesalers have been reducing inventory levels. In the second half, the group has re-commenced sales in South Korea, and expects an improving contribution from Med-Pharmex and will see the benefit of two recent new product launches, Zenalpha and Zycosan.

Based on the recent US de-stocking and current exchange rates, the board now expects full year underlying operating profit to be at the lower end of analyst expectations.

It added: “The nature of the Dechra product portfolio, with a weighting towards CAP (companion animal products) and non-discretionary prescription only medicines, means that we remain well positioned to outperform the markets in which we operate.

“Furthermore, the increased investment being made in R&D will underpin operating margin expansion over the medium term as delivery of our pipeline, which is stronger than ever, adds further scale and breadth to our portfolio.”

Dr Mike Mitchell and Dr Julie Simmonds, analysts with Panmure Gordon, said: “Dechra’s interim results for the six months ended 31 December 2022 see the group report revenues +5.2% at Constant Exchange Rate (CER) (+13.5% at Actual Exchange Rate (AER)) against a tough prior year comparator.

“Underlying operating profit reduced against the prior year period – as expected – largely due to the planned increase in group R&D expenditure/pipeline investment in 1H23 vs the R&D underspend in 1H22.

“However, we note commentary regarding ‘unpredictable’ US trading patterns at the start of 2023 and, with the combination of US wholesalers reducing inventory levels and exchange rates, underlying operating profit for the full year is expected to be ‘at the lower end of analyst expectations’.

“Given the prevailing range of £186m-£199m, we consider our current estimate of £188m is well placed and make no change to earnings while trimming FY23E revenues to £788.8m (previously £793.5m). We’ll keep an eye on future US trading commentary but otherwise maintain our earnings forecasts unchanged, reiterating our Buy recommendation.”

Original article here:

Author: Neil Hodgson, North West Business Editor, The Business

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