ECO Animal Health Group PLC

ECO Animal Health Group PLC (LON: EAH) is a FTSE AIM All-Share listed manufacturer of animal health products. The Company is involved in the development of medicines for diseases in companion animals and livestock.

Trading Update (as on 10^th June 2020)
The Company provided a decent trading update following the conclusion of its financial year ended 31 March 2020. The revenue and earnings before interest, tax, depreciation and amortization (EBITDA) expected to be ahead of market anticipations for the year ended 31^st March 2020. ECO Animal had faced a limited impact of a virus outbreak to date. Started the new financial year 2021 decently with a continued forte in the US and Chinese markets. In the second half of the financial year 2020, the Company has continued investment in the new product pipeline. On 31^st March 2020, the total Group net cash balance was approximately GBP 9.9 million. Further, the Company has an overdraft facility of GBP 5 million, which was undrawn (on a net basis) at the year-end.

Share Price Performance

1-Year Chart as at June-11-2020, before the market close (Source: Refinitiv, Thomson Reuters)

On 11^th June 2020, before the market close (at 10:45 AM GMT+1), ECO Animal Health Group PLC’s shares were trading at GBX 265 and remained the same against the previous day closing price. Stock 52 weeks High and Low are GBX 439.00 /GBX 110.00.

From the technical standpoint, its shares were trading well below its long-term support level of 365-day exponential moving average prices, which reflects a downtrend in the stock and carrying the potential to move down further. At the current trading level, 14 days relative strength index of the stock was not favourable, and prices could fall further from the current trading level. MACD line is placed below the central line, indicating a bearish setup. The shares of the company have delivered a negative return of 26.18 per cent in the last nine months period.

Valuation Methodology

*Peers: Orexo AB, Cathay International Holdings Ltd, Allergy Therapeutics Plc, and Mithra Pharmaceuticals SA.

Key Risks
The company operates in multiple geographies, and its profits can be impacted negatively due to foreign exchange rate fluctuations. Moreover, economic conditions within the geographic areas within which it operates influences the operating and financial performance of the company and can face uncertainty in the medium-to-long term due to ongoing COVID-19 mayhem.

Conclusion
The Group and the Industry remain cautious of the current macroeconomic and political risks.  The Group is facing emerging headwinds and cost pressures. The company’s operations are impacted negatively due to uncertainty created by the Brexit or COVID-19 as it will result in an uncertain political and economic climate for short to medium term.

From a technical perspective,RSI and MACD indicating bearish setup for the stock, and it is not financially viable to take a fresh position currently. Therefore, it is advisable to book profit as of now, considering global headwinds persisting currently due to covid-19 pandemic. The company’s Price/Cash Flow, EV/EBITDA and Price/Earnings multiples are significantly higher as compared to the industry multiple, reflecting overstretched valuations.
Based on the risks associated and factors as discussed above, we have given a “Sell” recommendation at the current price of GBX 280 (as on 11th June 2020, before the market close at 10:05 AM GMT+1), while we will look forward to reinvest at the correct time when the due corrections are done.
 
*All forecasted figures and Peers information has been taken from Refinitiv, Thomson Reuters.

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