Alliance Pharma PLC

Alliance Pharma PLC (LON: APH) is an FTSE AIM UK 50 Index listed Company. It is involved in healthcare and pharmaceutical product acquisition, marketing, and distribution.

It expects to announce the FY21 results on 22 March 2022.

Investment Rationale – SELL at GBX 114.70

• A decline in Free Cash Flow: The Company's free cash flow was £30.1 million as of 31 December 2021 compared to £34.1 million as of 31 December 2020, resulting in a net decrease of £4.0 million.
• High Inflation Rate: The inflation rate has reached 5.4% in December 2021. Hence, the Bank of England might increase the UK interest rates in March.
• Weak Margins: In Q2 FY21, the Company's gross, EBITDA, and net margins were lower than the industry median.
• Technical Indicator: From a technical standpoint, Bollinger Bands suggests that the price has breached the upper Bollinger Band, while the 14-day RSI (~68.36) is also in the overbought position.

Key Risks

• Pandemic Induced Disruption: The resurgence in the Omicron variant of coronavirus can limit the Company’s ability to formulate, innovate, launch, and commercialize new products.
• Regulatory Risk: The Company is exposed to regulatory and compliance risks which might impact its market position.

Full Year Trading Update (for the year ended 31 December 2021, as of 18 January 2022)

• Growing Revenue: The Company posted revenue of £169.6 million in FY21 compared to £137.5 million in FY20.
• Challenging Trading Conditions: The market level demand remained subdued due to the supply chain disruptions.
• Financial Position: The Group maintained a strong balance sheet with decreased debt obligations.

Share Price Chart

(Source: REFINITIV; Analysis done by Kalkine Group)

Valuation Methodology: Price/Earnings Approach (FY22) (Illustrative)

Conclusion

Based on the decrease in free cash flow, weak margins, subdued market demand, high inflation, coupled with the unfavorable valuation conducted above, we have given a “SELL” recommendation on Alliance Pharma PLC at the current market price of GBX 114.70 (as of 02 February 2022, at 08:45 AM GMT). 

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

Note 2: Investment decisions should be made depending on the investors' appetite for 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 that 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.

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