UDG Healthcare PLC

UDG Healthcare PLC (LON: UDG) is an FTSE 250 listed healthcare service provider. It was established in 1948 and is headquartered in Dublin, the Republic of Ireland.

Investment Highlights – UDG Healthcare PLC – Sell at GBX 1,030.00

• The revenue of UDG had shown a declining trend during H1 FY21 as compared to H1 FY20.
• The stock price might have recently rallied because of an acquisition bid made by US private equity giant Clayton, Dubilier & Rice, which worth around £61 billion.
• Return on Capital Employed (“ROCE”) got declined by 60 basis points during H1 FY21 as compared to H1 FY20.
• UDG is trading near the 52-weeks high of GBX 1,037.00, indicating a downtrend in the stock.
• From a technical standpoint, 14-day RSI (~81.59) is supporting the downside potential.

Key Risks

• The failure to execute and properly integrate acquisitions may impact the Group's projected revenue growth.
• UDG is exposed to liquidity, interest rate, currency, and credit risks.
• The risk of inappropriate advice, packaging, supply, or administration could lead to a negative patient experience.

Recent Developments

Recommended Cash Offer for UDG Healthcare – On 12 May 2021, the Company had agreed upon the takeover bid made by US private equity giant Clayton, Dubilier & Rice that values the firm worth around £2.61 billion. According to the acquisition terms, each UDG shareholder would receive 1,023 pence per share, at a premium of approximately 21.5% on the closing price of 842.0 pence per share as of 11 May 2021. Moreover, the deal would be expected to get completed by the third quarter of 2021.

H1 FY21 Financial Highlights (for six months ending 31 March 2021 as of 12 May 2021)

 (Source: Company result)

• The Company had reported a 5% decline in the revenue to USD 661.4 million during H1 FY21.
• The revenue across Ashfield was declined by around 7%, and Sharp revenue got increased by 1% during H1 FY21.
• The diluted earnings per share had demonstrated a decline of 8% to 20.35 US cents during H1 FY21.
• UDG had a net debt of around USD 34.3 million as of 31 March 2021.
• The ROCE went down by 60 basis points from 14.1% as of 31 March 2020 to 13.5% as of 31 March 2021.

One Year Share Price Chart

(Source: Refinitiv, Thomson Reuters)

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

Conclusion

UDG had not proposed any interim dividend for FY21 so far. Moreover, the proposed acquisition made by Clayton, Dubilier & Rice would be expected to complete by the third quarter of 2021. Furthermore, UDG had anticipated adjusted operating profit growth of between 12% and 14% at constant currency during FY21, while the adjusted diluted earnings per share growth would be ranging from 10% to 12% at constant currency. The stock made a 52-week low and high of GBX 584.00 and GBX 1,037.00, respectively.

Based on the overstretched technical indicator, uncertain outlook, proposed acquisition made by Clayton, Dubilier & Rice would be expected to complete by the third quarter of 2021, and the valuation method as discussed above, we have given a "Sell" stance on UDG Healthcare PLC at the current market price of GBX 1,030.00 (as of 12 May 2021 at 08:23 AM GMT).

*All forecasted figures and Peer information have been taken from Refinitiv, Thomson Reuters.

*The dividend yield is subject to change as per the stock price movement.

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