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 3,404.00

• Strong Fundamentals: DPH reported 15.9%, 50.1%, 24.0% and 110.0% YoY growth in revenue, operating profit, underlying diluted earnings per share and underlying cash conversion in H1 FY22, at constant exchange rate.
• Bright Prospects: DPH is a FTSE 100 listed entity which is trading close to its 52-week low with excellent growth potential given its ability to outperform markets, strategic growth opportunities, and progress on product pipelines.
• Continued Acquisitions: DPH continued with its acquisition strategy during H1 FY22 and acquired Rompun (xylazine injection) and Butorphanol Tartrate Injection from Elanco Animal Health. This bolsters their anaesthesia and analgesia portfolio.
• Technical Standpoint: The current stock price is trading below the middle Bollinger Band with 14-day RSI (41.63), approaching an oversold zone.

Key Risks

• Business Risks: Intense competition and launch of alternative products in its key therapeutic sectors is a key risk to the Company. Moreover, its heavy reliance on third party suppliers can impact its operational performance.
• Macroeconomic Risk: Markets shall remain jittery over rising interest rates, demand weakening, cost-of-living crisis, concerns over inflation and possible recession.

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 actual exchange rate to £332.4 million in H1FY22, compared to £299.8 million in H1FY21.                    
• Operating Profit: The Group clocked a growth of 42.4% in operating profit to £57.4 million in H1FY22, compared to the prior corresponding period.   

One Year Share Price Chart

 (Source: REFINITIV; Analysis done by Kalkine Group)

Valuation Methodology: Price/Earnings Approach (FY23E)

*Peers: Advanced Medical Solutions Group PLC, Genus PLC, and Spire Healthcare Group PLC.

*All selected peers are LSE-listed Companies from the Health Care sector.  

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 decent performance, uptick in revenue across geographies, increase in dividend and support from the valuation as done using the above method, we have given a “Buy” recommendation on Dechra Pharmaceuticals PLC at the current market price of GBX 3,404.00 (as of 10 June 2022, at 8:56 AM GMT+1) with lower double-digit upside potential based on 31.11x Price/NTM Earnings (approx.) on FY23E 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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