- Shares fall on tough Q3 comps and 2H weighting
- Dechra expects to meet 2023 full-year expectations
- De-rating continues against rising rate backdrop
Global veterinary pharmaceutical specialist Dechra Pharmaceuticals (DPH) was the biggest faller in the FTSE 100 on Thursday, after reporting lower third quarter trading against a tough comparison in 2021.
The shares dropped 4% to £25.05, which means they have halved year-to-date despite earnings expectations holding up well. Consequently, the forward price-to-earnings ratio has shrunk to 21.7 times compared with 42.9 times a year ago.
Numis said: ‘The shares are down 50% year-to-date and now trade on a more reasonable (and increasingly attractive) multiple of circa 16 times EV/EBITDA versus 32 times at the peak in 2021.’
While the company reassured the market that it was on target to ‘deliver against its strategic growth drivers and achieve current market expectations for the 2023 financial year’, it introduced some uncertainty by adding ‘the phasing of which is expected to be second half weighted’.
Dechra believes current market expectations based upon the average of 10 analysts is for earnings before interest of £191 million. The estimates reflect changes made since the 5 September results update.
Numis said that while the second half weighting may be of concern to some investors, the historical record showed that before the pandemic Dechra traditionally reported seasonality with a 48/52 weighting.
In addition, there is a lingering worry the business got a one-off boost from pet ownership during the pandemic which has yet to fully normalise.
Finally, surging inflation has forced the Bank of England to aggressively hike interest rates which has reduced the value of Dechra’s (and other highly rated shares) earnings.
STRATEGIC PROGRESS
Dechra said the two US acquisitions made post the June 30 year end had been successfully integrated while the group’s ‘cost base and supply chain remain tightly controlled’.
In July the company purchased Piedmont Animal Health for $210 million (£175 million). In August, Dechra purchased Med-Pharmex, an established platform business with manufacturing, product development and regulatory capabilities in the US, for $260 million (£222 million).
