Dechra Pharmaceuticals Plc (LON: DPH) – Robust dividend growth of around 18.10% in FY21

Dechra Pharmaceuticals Plc (LON: DPH) is an FTSE 250 index listed company. It is into global specialist veterinary pharmaceuticals and related products business. Their expertise is in products exclusively for veterinarians. Dechra's business 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 October 2021, the Company will conduct its Annual General Meeting and release the trading update.

Recent trend of dividend payments

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

The chart above demonstrates the consistent dividend payment done by the Company from FY16 to FY20. DPH would pay an FY21 final dividend of GBX 29.39 per share, taking a full-year dividend to GBX 40.50 per share, an 18.1% increase on a YoY basis. The final dividend would be paid on 19 November 2021 and has an ex-dividend date of 28 October 2021.

Major Approvals Received During the Year

• In Europe and the UK, the Company received approval for Apovomin Injection, Clindacutin Ointment, Lodipred Tablets, Metomotyl Flavoured Tablets, and Rexxolide Injection. Along with that, they also received approval for Equi-Solfen, a topical anaesthetic for horses.
• Carprofen Flavoured Tablets, an anti-inflammatory for dogs, were approved in the USA, and Mirataz Transdermal Gel was registered in Canada.
• The Company 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.

Growth Prospects

• Strong Market Fundamentals: The Company is seeing an increase in pet ownership and expenditure per pet. The EU market is seeing strong organic growth with improved supply, digital sales, and marketing interactions. In the North American market, the Company is seeing strong demand and has improved its market share.
• Portfolio Giving Strong Growth: All company product categories delivered growth, with CAP and Equine performing exceptionally well. In the CAP segment, the Company increased its market shares in key therapy areas and launched two critical new products, Mirataz and Osurnia.
• Geographical Expansion: The Company has a sales and marketing presence in 25 countries and product reach in 68 other countries worldwide through distributors or marketing partners. The Company also successfully registered CAP products in Brazil and registered several critical brands in Australia. As a result, the Company also increased its distribution reach and business.

Key Risks

• High Competition: Revenues and margins may be adversely affected if the competitor launches a novel or generic version of the Company's product.
• 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.
• Supply Chain Risk: Any shortage of raw materials could increase the product cost, delay in launching new products or product shortage.
• Regulatory Risk: Any change in the regulations could impact the trials and operations of the Company.
  

Now we will analyze some key fundamental and shareholders statistics of Dechra Pharmaceuticals Plc. 

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

(Source: LSE Website) 

• On the back of strong organic growth across all key markets, the total revenue increased by 21.0% to £608.0 million.
• The cost-saving measures resulted in an operating profit increase of 29.2% to £162.2 million.
• 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.
• The Companion Animal Products segment, representing 72.8% of the Group’s turnover, grew by 25.9%, driven by increased market shares in key therapy areas of Endocrinology, Anaesthesia/Analgesia, and Internal Medicine in the EU and across all categories in the USA.

Financial Ratios (H2FY21)

Share Price Performance Analysis

 (Source: Refinitiv, Research done by Kalkine Group)

On 9 September 2021, at 10:39 AM GMT, DPH’s shares traded at GBX 4,896.00, up by around 0.04% against the previous day closing price. DPH’s 52-week High and Low were GBX 5,525.00 and GBX 3,110.00, 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 38.77 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 ~47.90% in the last year. Also, it has outperformed the FTSE All-share Pharmaceuticals and Biotechnology Index with a return of about 9.68% and the FTSE 250 index with a return of around 34.89%.

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

Business Outlook

Dechra Pharmaceuticals delivered an excellent performance in FY21, with revenue growth of 21.00% against FY20. 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. The Company maintains a solid financial position with improvement in working capital to £142.7 million. The Company also increased its R&D expenditure, and a strong product pipeline could drive revenue in the future.

Considering the Company’s product pipeline, recent success in trials, continued market expansion, and support from the valuation using the above method, we have given a “BUY” recommendation on Dechra Pharmaceuticals Plc at the current price of GBX 4,896.00 (as on 9 September 2021, at 10:39 AM GMT), with a lower-double digit upside potential based on 50.58x 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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