Dechra Pharmaceuticals PLC (LON: DPH)

Dechra Pharmaceuticals PLC (LON: DPH) is an FTSE 100 index listed Company focused on global specialist veterinary pharmaceuticals and related products business. DPH has expertise in products exclusively for veterinarians. It has a unique business model, and most of its products treat medical conditions with no other practical solution or have a clinical or dosing advantage over competitor products.

On 21 February 2022, the Company will release H1 FY22 financial results for the six months ended 31 December 2021.

Recent trend of dividend payments

DPH had paid a final dividend of 29.39 pence per share attributable for FY21 on 19 November 2021, while the ex-dividend date was 28 October 2021. Thus, the full-year FY21 dividend came out to be 40.50 pence per share, an 18.1% increase on a YoY basis.

(Data Source: LSE Website, Research done by Kalkine Group)

Growth Prospects (also covers details of a trading update released on 13 January 2022)

• New Approvals: DPH received approval for three new products, one line extension registration in Australia and New Zealand, two new approvals in Mexico, and four new approvals in Brazil. Internationally, Dechra Pharma received 38 approvals across key brands in multiple countries.
• New Specialist Therapeutic Area: The Company has signed an agreement for the acquisition of the worldwide rights to verdinexor, branded Laverdia®. It will strengthen the existing portfolio and explore the new specialist therapeutic area.
• Geographical Presence: The Company has a sales and marketing presence in 25 countries and product reach in 68 other countries worldwide through distributors or marketing partners.
• Acquisition Benefits: The acquisition of Osurnia® and Tri-Solfen® in Australia and New Zealand has made a significant contribution in FY21 revenue. Meanwhile, DPH has also acquired four additional Equine products and two additional anaesthetic products during H2 FY21 for a combined consideration of USD 29 million.

Key Risks 

• Slow Top-Line Business Growth: DPH highlighted in a trading statement regarding the slowdown in the top-line business growth during H1 FY22 when compared with the extraordinary levels experienced in the prior year as markets return to more normal levels, albeit from a higher base.
• Record UK Inflation: The annual rate of UK consumer price inflation reached 5.5% in January 2023, the highest since March 1992.
• Low Success Rate of Clinical Trials: Clinical trial failures could adversely affect the Company's ability to deliver shareholder expectations and damage reputation and relationship with veterinarians.
• Stock Price Correction: On a YTD basis, the stock price plunged almost 25%, which can impact its continuity as the member of FTSE 100 index.

Key Fundamental and Shareholders Statistics of Dechra Pharmaceuticals PLC.

Fidelity Management & Research Company LLC is the most significant shareholder as it holds nearly 8.89 million shares as of 31 December 2021.               

Financial and Operational Highlights (for 12 months ended 30 June 2021 as of 6 September 2021)

(Source: Company Filings)

• Strong Top-Line Business: On the back of strong organic growth across all key markets, the total revenue increased by 21.0% to £608.0 million.
• Profitability: The cost-saving measures resulted in an operating profit increase of 29.2% to £162.2 million on an underlying basis.
• Divisional Performance: The Company’s European (EU) Pharmaceuticals Segment reported net revenues increase of 20.2%. The North America (NA) Pharmaceuticals Segment’s net revenues increased by 22.2%, driven primarily by strong organic growth on existing products and incremental sales performance on recently acquired products

 Financial Ratios (FY21)

Share Price Performance Analysis

 

(Source: Refinitiv, Research done by Kalkine Group)

On 17 February 2022 at 08:02 AM GMT, DPH’s shares were trading at GBX 3,914.00, down by around 0.15% against the previous day closing price. Stock 52-week High and Low were GBX 5,525.00 and GBX 3,236.00, respectively.

On a daily chart, the stock price is sustaining between the lower Bollinger band and middle Bollinger band. Hence, there could be an uptick in the stock price in the near term. Also, the 14-RSI at around 38.61 indicates that the stock is trading near the oversold territory, which suggest trend reversal in the near term.

DPH’s stock has delivered a decent positive return of ~40.55% over the last two years period. Also, it has outperformed the FTSE All-share Pharmaceuticals & Biotechnology Index with a return of about 10.18% and the FTSE 100 index with a return of around 1.86%.

Valuation Methodology: Price/Earnings Approach (FY22E) (Illustrative)

Business Outlook

DPH delivered a decent business performance in H1 FY22, with revenue growth of around 15.00% against H1 FY21. The Company sees strong momentum and market penetration going forward. DPH made significant operational improvements by strengthening infrastructure and made progress on numerous strategic opportunities to strengthen its product portfolio and development pipeline. However, the Covid-19 related travel restrictions had brought down the acquisition activity levels. Nevertheless, DPH remained committed to exploring new therapeutic areas with the acquisition of Laverdia®. Overall, the Company would continue to generate a long term for the shareholders with consistent dividend payments and an impressive acquisition pipeline.

Considering the decent top-line business, several key acquisitions, impressive development pipeline, strong dividend growth, and support from the valuation as done using the above method, we have given a “BUY” recommendation on Dechra Pharmaceuticals PLC at the current price of GBX 3,914.00 (as on 17 February 2022 at 08:02 AM GMT), with lower-double digit upside potential based on 40.20x Price/NTM Earnings (approx.) on FY22E earnings per share (approx.).

Note 1: The reference data in this report has been partly sourced from REFINITIV.

Note 2: Investment decision should be made depending on the investors’ appetite on upside potential, risks, holding duration, and any previous holdings. Investors can consider exiting from the stock if the Target Price mentioned as per the Valuation has been achieved and subject to the factors discussed above.

Note 3: Dividend Yield may vary as per the stock price movement.

Note 4: Target Price refers to a price level which the stock is expected to reach as per the relative valuation method and or technical analysis taking into consideration both short-term and long-term scenarios. 

Technical Indicators Defined: -

Support: A level where-in the stock prices tend to find support if they are falling, and downtrend may take a pause backed by demand or buying interest.

Resistance: A level where-in the stock prices tend to find resistance when they are rising, and uptrend may take a pause due to profit booking or selling interest.

Stop-loss: It is a level to protect further losses in case of unfavorable movement in the stock prices.

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