Alliance Pharma PLC (LON: APH) 

Alliance Pharma PLC is an FTSE AIM UK 50 index listed United Kingdom-based specialty pharmaceutical company engaged in the acquisition, marketing and distribution of pharmaceutical products. Moreover, APH operates across several therapeutic areas of cardiovascular, central nervous system, child health, consumer health, dermatology, endocrinology, gastroenterology, obstetrics and gynecology, etc.

Recent Trend of Dividend Payments

APH will pay an interim dividend of 0.563 pence per share on 07 January 2022, while the ex-dividend date will be 23 December 2021. Moreover, the Company had paid 0.536 pence of interim dividend for 2020. Thus, the interim dividend growth came out to be around 5% for H1 FY21 when compared with H1 FY20.

Growth Prospects

• Impressive Acquisition Activities: The acquisition of Amberen would make decent contributions during H2 FY21. Meanwhile, the acquisition of Amberen got integrated successfully and traded in line with the expectations during the first half of 2021.
• Establishment of Kelo-cote Brand: The Kelo-cote revenue went up by around 54% during H1 FY21, boosted by the strong demand from China. Furthermore, it had become very well established in China, with high brand awareness and usage.
• Achievement of Leverage Target: The Company had reduced leverage to 2.21x at the end of H1 FY21. Furthermore, APH expects to keep leverage below 2.0x by the end of 2021.
• Innovation & Development process: APH had set up the Innovation & Development process to enhance the ability to extend the reach of the larger consumer brands through brand extensions.
• Government Spending on Healthcare: The Government had raised their resource spending on healthcare by £44 billion to over £177 billion in the recently announced budget.

Key Risks

• Failure to Develop Products: The Company might fail to develop and get the approval of marketable products. It could affect future revenue projections and market share.
• Highly Competitive Market: The biotechnology and pharmaceutical industries are very competitive. The Group’s competitors include major multinational pharmaceutical companies, biotechnology companies and research institutions.
• The Decline in Free Cash Flow: APH had shown around a 38% reduction in the free cash flow during H1 FY21 as compared to H1 FY20.

Now, we will analyse the Key Fundamental Statistics & Shareholding Pattern of Alliance Pharma PLC.

Fidelity Management & Research Company LLC is the most significant shareholder as it holds nearly 53.32 million shares as of 30 September 2021. 

H1 FY21 Financial & Operational Highlights (for the six months ended 30 June 2021, as of 21 September 2021)

 

(Source: Company result)

• Decent Revenue Growth: The uplift in revenue from the enlarged Consumer Healthcare business drove statutory revenues higher by around 27% to £78.6 million during H1 FY21.
• Improvement in Profitability: APH had shown around a 24% increase in the underlying profit before tax from £16.3 million in H1 FY20 to £20.1 million during H1 FY21.
• Reduction in Net Debt: The Company had strengthened its financial position by reducing the net debt from £109.4 million as of 31 December 2020 to £105.4 million as of 30 June 2021.

Financial Ratios (H1 FY21)

Share Price Performance Analysis

 (Source: Refinitiv, Research done by Kalkine Group)

On 28 October 2021, at 08:05 AM GMT+1, APH’s shares were trading at ~GBX 103.18, up by around 0.17% against the previous day closing price. Stock 52-week High and Low were 123.00 and GBX 72.10, respectively.

From a technical perspective, the MACD line remained above the signal line, indicating an upside potential in the stock price.

Over the last one year, APH’s stock price has delivered a positive return of ~41.11%, and it has outperformed the FTSE All-Share Pharmaceuticals & Biotechnology index (benchmark sector) with a return of about 25.03% and FTSE AIM UK 50 index (benchmark index) with a return of approximately 26.49%.

Valuation Methodology: Price/Earnings Approach (NTM) (Illustrative)

Business Outlook

The Company looked forward to replicating the resilient business performance shown during H1 FY21 in the second half as well. Nonetheless, APH remained all set to meet market expectations in terms of revenue, underlying profits, and net debt. The Company had identified multiple revenue opportunities through Kelo-cote and realising growth potential in Nizoral through 2022 and beyond. Meanwhile, the Company had completed the integration of Amberen and now seeking opportunities across EMEA, APAC and, more recently, the US. However, the stock price may undergo adverse volatile movements amid rising inflation worldwide and increasing bond yields. In a nutshell, the Company remained on track to deliver long-term returns for the shareholders driven by a robust product pipeline and multiple growth opportunities.

Considering the positive turnaround in bottom-line profitability during H1 FY21, successful integration of recent acquisitions, the increased popularity of Kelo-cote Brand, and support from the valuation as done using the above method, we have given a “Speculative Buy” recommendation on Alliance Pharma PLC at the current price of GBX 103.18 (as on 28 October 2021 at 08:05 AM GMT+1), with lower-double digit upside potential based on 18.18x Price/NTM Earnings (approx.) on FY22E earnings per share (approx.).

*The reference data in this report has been partly sourced from REFINITIV.

*All forecasted figures and Peer information have been taken from REFINITIV.

*Dividend Yield may vary as per the stock price movement.

*Depending upon the risk tolerance, investors may consider unwinding their positions in a respective stock once the estimated target price is reached.

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