dechra pharma slides (final).pptx.pptx
TRANSCRIPT
PRIMA EKUITI INVESTMENT CHALLENGE 2016
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Agenda 1. Company Background2. Macroeconomics Development
and Outlook3. Comparative Advantage4. Financial Analysis5. Valuation6. Key Risks7. Final Recommendation8. Appendix
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COMPANY BACKGROUND
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Line of business
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International specialist veterinary pharmaceuticals and related product business.
Dechra Pharmaceutical
s PLC
EU Phamaceuticals
North America Pharmaceutical
s
Dechra Manufacturing
▫ 188.9m revenue
▫ Operates in 15 countries
▫ 58.7m revenue▫ World’s largest
veterinary market
▫ Maintain reliable supply chain
Leadership
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Chief Executive Officer: Ian Page
CEODechra Pharmaceuticals PLC
2001
Group Finance DirectorVitec Group PLC
Group Finance DirectorConsort Medical PLC
CFODechra Pharmaceuticals PLC
January 2017
Managing DirectorNational Veterinary
Services1998
Non-Executive ChairmanSanford DeLand Asset Management
2010
Chief Financial Officer: Richard Cotton
2008
2011
Investment Thesis
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Multiple Acquisitions
Launch of New Patented Products
Low Potential Downside
MAPS
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Macroeconomics Development and Outlook
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Financial Market’s Performance
Stock Index Index Price (7/11/2016)
Index Price(17/11/2016
)
Dow Jones US Health Care
Index720.96 747.66
Nasdaq Health Care Index 615.58 666.485
S&P 500 Health Care
Index787.67 813.19
Stoxx Europe 600 Health
Care666 689
FTSE 250 17457.66 17600.949
Want big impact?USE BIG IMAGE.
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“Reform the Food and Drug Administration, to put greater focus on the need of patients for new and innovative medical products”
“
Major Events
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Trump’s take on Pharmaceutical Sector
▫ Cheaper drugs abroad to be sold in US
▫ Reduce backlog of US Food and Drug Administration
▫ Reduce regulations on drug prices
Brexit
▫ Triggering Article 50 in March 2017
▫ Negotiation type between UK and EU remains unclear
▫ Finland model versus non-EU country model
Global Animal Health Industry Analysis
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*Animal Health market is divided into FAP and CAP.
Market Drivers
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Portfolio Advantage & Commercial Excellence
Innovation Competitive Forces
Market Restraints
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Impact of Regulations
Scarcity of Arable Land and Area
Comparative Advantage
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DPM
Dechra Pharmaceuticals Manufacturing
International Footprint
Compete in Niche Market
Views on Brexit
FINANCIAL ANALYSIS
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Key Ratios Year 2014A 2015A 2016A
Debt/Equity Ratio 0.15 0.17 0.56
ROE (%) 31.12 9.75 4.52
ROCE (%) 16.4 20.00 16.1
Operating Margin (%) 12.9 12.8 5.87
Current Ratio 2.42 2.46 2.45
EPS 37.48 39.9 42.95
Dividend Yield (%) 1.84 1.55 1.34
P/E Ratio 19.85 24.47 32.0117
Justifications
D/E ratio▫ Higher amount of debt raised this year due to multiple acquisitions made.
ROE and ROCE▫ Dilutive effect on earnings from equity and debt issued to finance acquisitions.▫ Higher operating expenses due to scaling of business.▫ Increased assets acquired.
Operating Margin▫ Higher finance cost and operating expenses from larger scale of business.
EPS▫ Increased this year due to organic growth, acquisitions, and positive movements in exchange
rate.
Dividend Yield▫ Dividend policy seems to be proportional to its trend of increasing income.▫ Decreasing due to higher share price although Div/share increased.
P/E▫ Relatively high, a sign of high growth of the company
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VALUATIONS
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Revenue Estimation
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EPS Estimation (Basic shares)
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DCF Model
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Target Price: £15.97(Different from report)
Key Assumptions:
▫ Revenue growth at 25.5% at 2017E and smoothed at a decreasing rate after 2017
▫ COGS as a percentage of revenue is 48% at 2017E and decreasing in the coming years
▫ CAPEX is at constant proportion of sales at 1%
▫ Tax rate is constant at 20%
▫ Selling, general and administrative is capped at 25.5% of revenue
▫ R&D is capped at 4.3% of revenue (Historic level)
Scenarios
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Bearish Scenario: £11.40 (12 months)
▫ Lower growth than GDP
▫ Higher regulatory impositions from Brexit
▫ Unable to improve revenue growth
Bullish Scenario: £16.30 (12 months)
▫ Higher gross margin than expected
▫ Lower regulatory hurdles in EU
▫ Faster terminal growth than GDP
Key Risks
Emergence of Internet
Pharmacies and
veterinary buying groups
Integration is more
challenging than
expected
Fail to meet regulatory
requirement
Continuous pressure on antibiotic
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FINAL RECOMMENDATIO
N25
Appendix ▫ www.dechra.com
▫ https://www.statnews.com/pharmalot/2016/11/15/donald-trump-pharmaceutical-industry/
▫ https://www.washingtonpost.com/news/wonk/wp/2016/11/14/trump-just-dropped-a-big-hint-to-the-pharmaceutical-industry/
▫ http://l.facebook.com/l.php?u=http%3A%2F%2Fuk.businessinsider.com%2Fpharmaceutical-and-healthcare-stocks-to-benefit-from-a-trump-presidency-2016-11&h=XAQHwLq9A
▫ https://l.facebook.com/l.php?u=https%3A%2F%2Fpharma.elsevier.com%2Fpharma-rd%2Fwhat-does-the-2016-us-election-mean-for-pharma%2F&h=XAQHwLq9A
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