Dechra Pharmaceuticals PLC

Dechra Pharmaceuticals PLC (LON: DPH) is an FTSE 100 index listed Company focused on global specialist veterinary pharmaceuticals and related products business.

Investment Rationale for Valuation – Buy at GBX 3,526.00

• Solid Fundamentals: The Company posted a decent top-line business growth of around 15.9% and a solid 24.0% increase in the diluted earnings per share during H1 FY22.
• Continued Acquisitions: The Company has acquired Rompun (xylazine injection) and Butorphanol Tartrate Injection from Elanco Animal Health during H1 FY22. This bolsters their anaesthesia and analgesia portfolio.
• Decent Growth in Interim Dividends: The Board has declared an interim dividend of 12.00 pence per share in H1 FY22, reflecting a growth of 8% on the prior period, and was paid on 7 April 2022.
• Technical Indicator: The price of the stock is trading between the lower and middle Bollinger band with a low 14-day RSI level of ~31.97.

Key Risks

• Low Success Rate of Clinical Trials: Clinical trial failures could adversely affect the Company's ability to deliver shareholder expectations and damage its reputation and relationship with veterinarians.
• Tightening of Monetary Policy: Federal Reserve Chairman, Jerome Powell, had hinted at an 0.5% increase in interest rates in the next Federal Reserve meeting due in early May 2022. Meanwhile, the Bank of England is expected to raise interest rates to their highest level in 13 years on 05 May 2022.

Financial Highlights (for the six months ended 31 December 2021, as of 21 February 2022)

(Source: Company Website)

• Revenue Growth: Revenue surged by 10.9% at the actual exchange rate to £332.4 million in H1 FY22, compared to £299.8 million in H1 FY21.                    
• Operating Profit: The Group clocked a growth of 42.4% in operating profit to £57.4 million in H1 FY22, compared to the prior corresponding period.   

One Year Share Price Chart

(Source: REFINITIV; Analysis done by Kalkine Group)

Valuation Methodology: Price/Earnings Approach (FY22E)

Conclusion

The company has invested in its systems and resources over the last two years and is poised to supply for higher levels of growth.

Based on the acquisition benefits, strong H1 FY22 results, increase in interim dividend and support from the valuation as done using the above method, we have given a “Buy” recommendation on Dechra Pharmaceuticals PLC at the closing market price of GBX 3,526.00 (as of 03 May 2022) with lower double-digit upside potential based on 34.20x Price/NTM Earnings (approx.) on FY22E earnings per share (approx.).

Please note markets are trading in a highly volatile zone currently due to certain macro-economic and geopolitical tensions prevailing. Therefore, it is prudent to follow a cautious approach while investing.

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.

Note 5: ‘Kalkine reports are prepared based on the stock prices captured either from the London Stock Exchange (LSE) and or REFINITIV. Typically, both sources (LSE and or REFINITIV) may reflect stock prices with a delay which could be a lag of 15-20 minutes. There can be no assurance that future results or events will be consistent with the information provided in the report. The information is subject to change without any prior notice.’

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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