Dechra sets its sights on two major deals and South Korean subsidiary

Dechra Pharmaceuticals has posted solid full-year results as it flagged a near-£400million spend on summer acquisitions and revealed a new South Korean subsidiary.

The FTSE 100-listed veterinary medicine group posted a 13.8 per cent rise in revenue to £681.8million for the year to 30 June, up from £608million a year ago. 

Underlying operating profits jumped 9.4 per cent to £174.3million, while underlying earnings were 9.2 per cent stronger than a year ago, coming in at £190.6million.

Ian Page, the group’s boss, said: ‘We have continued to progress on all aspects of our strategy; the product development pipeline was strengthened, material acquisitions were completed post year-end and a new subsidiary was established in South Korea as we continue our geographical expansion.’ 

The group’s underlying diluted earnings per share increased by 14 per cent to 120.8p and Dechra upped its full-year dividend by 10.8 per cent to 44.89p.

The company cited ‘strong organic growth’ across all its key markets and all therapeutic segments as fuelling its improved performance. 

Last week, Dechra completed its second significant acquisition of the year, snapping up US medicine manufacturer Med-Pharmex, for £220million.

The acquisition of the California-based firm is expected to strengthen Dechra’s manufacturing facilities in North America. The US is currently the world’s biggest animal health market.

Back in July, Dechra completed the acquisition of US healthcare firm Piedmont for £175million, bringing in two products which are expected to launch between 2024 and 2025, with expected peak sales potential of at least £34million.

Looking ahead, Mr Page, said: ‘As the market returns to normal levels of trading post the impact of Covid-19 and as current macroeconomic uncertainties are expected to continue, the veterinary pharmaceutical market, particularly in the CAP sector, is resilient and in growth.

‘The acquisition, post year end, of Med-Pharmex strategically strengthens our position in the US market. The acquisition of Piedmont adds several novel exciting products to our development pipeline and we continue to identify new opportunities as we successfully execute our strategy.

‘We remain confident in our ability to outperform the markets in which we operate and in the prospects for the current financial year.’ 

Despite the strong showing, Dechra shares fell sharply and were down 7.65 per cent or 267.56p to 3,228.44p in early morning trading.  They are down more than 30 per cent this year. 

Victoria Scholar, head of investment at Interactive Investor, said: ‘Dechra was an outperformer during the pandemic thanks to strong demand for pets and pet related services. 

‘However like many listed companies, 2022 has been significantly more challenging with the stock shedding over a third of its value since the peak. 

‘The fundamentals of the business remain robust with no sell recommendations on the stock from the analyst community. But the macroeconomic challenges of inflation and the risk of recession combined with the backdrop of volatile financial markets suggest the path ahead continues to look bumpy.’

Adam Vettese, an analyst at eToro, said: ‘Dechra Pharmaceuticals’ business model is holding up well in the face of soaring inflation, lower consumer spending and a once-in-a-generation squeeze on household incomes.’

He added: ‘While Dechra’s prelims are strong and the outlook looks positive, the share price remains in the doldrums and is now more than 30 per cent off where it was at the start of the year. We think this has primarily to do with valuation concerns. The firm is currently trading on a price-to-earnings ratio of more than 50, compared with around 14 as the rest of the FTSE 100.

‘While Dechra’s consistent growth may be enough to tempt some people to snap up its shares, its lofty valuation could be a deterrent for many investors.’

Stifel analyst Max Herrmann, said: ‘FY23 has got off to a busy start with the acquisitions of Piedmont Animal Health for $210million and Med-Pharmex for $260million. 

‘These acquisitions, combined with inflationary pressures, are expected to impact profitability in FY23 a little more than we had first expected, and we therefore lower our adj. EPS forecasts by c.5 per cent. With the shares trading at an 18 per cent discount to Zoetis based on CY22 P/E, we continue to see good value in the business. Reiterate Buy.’