There’s a big chunk of Alliance Pharma (LSE: APH) stock in a fund run by well-known manager Mark Slater. Today’s full-year results from the firm start to reveal why that might be. The figures are good. Revenue rose 6% during the year and underlying adjusted basic earnings per share went up 10%. Free cash flow increased by 67% to £21.7m, which puts the directors in a good position to carry on with the buy-and-build strategy behind the firm’s success so far. They demonstrated their faith in the outlook by pushing up the full-year dividend 10%.
Expansion into the USA
The international speciality pharmaceutical company has a long record of acquiring established niche products and now owns or licenses the rights to around 90 pharmaceutical and consumer healthcare offerings with sales coming from more than 100 countries. Highlights in today’s report included a 34% uplift in sales of scar reduction product Kelo-cote and a 38% rise in sales of macular pigment supplement MacuShield. Such fast-growing brands bode well for future financial results and on top of that, the acquisition programme could find more winners. In December, the company acquired lice treatment Vamousse and anaesthetic cream and gel Ametop, which should help to power the firm’s growth as it moves forward.
Chairman David Cooke explained that 2016 was a transformational year for the company during which it integrated its mammoth acquisition of the Sinclair Health Products business. Happily, all the firm’s hard work has borne fruit in 2017 with these good results and cash generation, which Mr Cooke said positions the firm to “pursue growth both organically and through further acquisitions in 2018.” The firm has already set up a US affiliate during 2018, suggesting the possibility of gathering sales from across the pond driven by Vamousse, which already derives 80% of its sales from America. The US is the largest consumer healthcare market in the world, which means the potential is exciting.
Growth on track
The shares are up around 110% over the last four years due to generally rising earnings. Yet City analysts following the firm expect earnings to slide 13% during 2018 before bouncing back by 11% in 2019. Earnings figures can be messy when a company is highly acquisitive so it will be interesting to see how things pan out. I think the important thing is that analysts forecast continuing rises for revenue and for the dividend over the next couple of years, suggesting the growth train remains firmly on the rails.
Mark Slater was influenced by his father Jim Slater’s Zulu Principle methodology for picking growth stocks, but I’m sure he has refined his strategy himself to produce the outstanding record he has achieved over the years with his Slater Growth fund. Whenever I see his name appear as a major holder of a company’s shares I tend to dig deeper, as now with Alliance Pharma.
At today’s share price close to 68p, you can buy some of the shares on a forward price-to-earnings ratio just over 13 for 2019 and the forward dividend yield runs at around 2.3%, which strikes me as a reasonable valuation for a business with so much potential.