Shares in global veterinary pharmaceutical products company Dechra Pharmaceuticals (DPH) dropped 7% to £47.30 on Monday despite reporting strong growth in annual profit, as profit-taking took hold after strong gains.
The shares have rallied 52% over the last six months, with Numis analyst Kane Slutzkin noting that the trailing EV-to-EBITDA (enterprise value to earnings before interest, taxes, depreciation, and amortisation) ratio of 31 times was above both historical norms and the firm's peer group.
PROFITABLE GROWTH
Revenues for the year to 30 June grew 21% to £608 million (16.2% organic), as already flagged in the July trading update, while adjusted operating profit increased by 29.2% to £162.2 million, representing a margin 26.7%, an uplift of 1.7% on last year. The increased margin was driven by acquisitions and lower expenses due to Covid-19. Excluding acquisitions, profit grew 19.5%.
Adjusted earnings per share grew 19.4% to 108.14p reflecting the increased number of shares following the share placing in June 2020 to purchase Osurnia and higher taxes.
The dividend was increased by 18.1% to 40.5p per share, reflecting confidence in the future growth of the business.
TAILWINDS
On the call with analysts the company acknowledged that while spending on pets had increased during the pandemic and had contributed to growth, there was no solid evidence yet to support the case that there had been an increase in the total number of pets owned.
The recent product acquisitions of Mirataz and Osurnia were said to be performing well, and Numis noted that the proportion of revenues from new products had increased to around a fifth over the last five years, signalling a high return on research and development spending.
SOLID PIPELINE
Management flagged several marketing authorisations achieved which would strengthen the existing portfolio. A diabetes drug for cats and dogs was said to be progressing well with launch expected in 2026.
The company said strong trading had continued into the new financial year and, while Covid-19 related travel restrictions had impacted acquisition activity, it had still managed to identify and progress numerous strategic opportunities.
