Dechra gains from bullish note from house broker Investec

11th Jun 2014 15:39

Broker Investec put out a bullish note on corporate broking client Dechra Pharmaceuticals, urging investors to "take a fresh look" at the veterinary pharmaceuticals specialist. Analysts Nicholas Keher and Cora McCallum argued that "revenue headwinds are normalising, its pipeline is starting to deliver, its end-markets remain robust and we think it is likely to continue to add acquisitions to drive growth". The pair perceive "significant potential" in the company, estimating that Dechra's pipeline of 11 assets could deliver an incremental £54m in revenues, un-risked, or £35m risked, over eight years at above-average group gross margins if all are successful. "Against today's estimates, this suggests a circa 28% uplift in revenues and a circa 50% uplift in operating profit, setting the stage for an attractive growth profile."Their review of the 'animal pharma' market found that it benefits from strong underlying growth drivers as assets have much lower research and development risk, a lack of reimbursement pressure and lower generic competition than for human products.Investec's estimates for 2015 and 2016 have been upgraded by 3% and 4% after taking into account an improving tax rate, recent acquisitions and product launches. "Whilst not cheap on conventional metrics, even versus peers, we regard Dechra as a high quality, organic growth asset in the Animal Pharma market, which should drive a re-rating," the note concluded. Dechra shares were up 1.93% to 712.50p by 15:45 on Wednesday.OH