Companion animals are good for the company
Animalcare Group's (LONDON:ANCR) trading update confirms it is performing as we expected. The 7.2% rise (y-o-y) in group revenues was driven by a 10.6% increase in Licensed Veterinary Medicines. Three new product introductions are planned for H215. Companion Animal Identification revenues were up 5.0%, while the continuing streamlining of the Animal Welfare portfolio saw revenues drop 1%, but profitability was increased slightly. Cash generation remains strong, with cash of c £5.0m at December 2014. Our DCF valuation remains essentially unchanged at £41.9m (201p a share), against our previous £41.5m (198p a share).
Licensed Veterinary Medicines sales up 10.6%
Licensed Veterinary Medicines benefited from solid organic growth coupled with a non-recurring boost in Buprecare sales as a competitor suffered from supply problems. Buprecare’s high gross margin suggests H115 profit will benefit from the event, although this will not be sustained into H215. Animalcare is planning to launch a further three new products, sourced from its European development partners, during H215. Phasing of spend on new product development will be skewed towards the end of the financial year (and beyond).
Companion Animal Identification grew by 5.0%
Companion Animal Identification continues to benefit from the new technology platform and focused marketing efforts with sales up 5.0% over H114. Promotions based on the 25th anniversary of the Identichip launch have been well received. The introduction of compulsory dog chipping in England in April 2016 remains Defra’s goal and Animalcare’s preparations are underway. The Welsh timetable has slipped to an as yet undecided date; it was due in March 2015.
Animal Welfare sales down but profitability up
The phased withdrawal from a number of non-core and less profitable lines has continued and saw revenues down 1% over the period. However, as seen in the previous year, Animal Welfare’s gross profitability increased slightly.
Valuation: Maintained at £41.9m (201p a share)
The planned investment in R&D means Animalcare’s earnings multiples over the next few years fail to reflect the value we expect to be generated over the longer term. Our valuation of £41.9m (201p a share) is based mainly on a DCF model, with the peer group earnings multiples essentially a reality check.
To Read the Entire Report Please Click on the pdf File Below