UDG Healthcare: Updating Estimates On H116, FX Moves
Edison | Jul 21, 2016 07:45AM ET
We are updating our forecasts for United Drug (LON:UDG) on the back of solid H116 results, the completion of the sale of the drug distribution business and recent pronounced currency moves. While providing a sufficient cash cushion in the current volatile market conditions, the divestment will allow increased flexibility for the company to deliver on its already successful track record of acquisitions. We raise our DCF valuation from £5.21 to £6.45/share.
Solid H116 performance supported by currencies
UDG reported encouraging H116 results, with both Ashfield and Sharp Packaging divisions delivering solid underlying earnings growth supported by positive FX moves. Ashfield’s H116 revenue and operating profit were up 3% and 7%, leading to a 0.4pp margin expansion to 9.6%. While the division’s UK revenue slid 2% in local currency terms (assuming all in £), its operating margin improved to 12.5% (vs 11.4% in H115) against the backdrop of an 8% increase in underlying operating profit. By contrast, Ashfield’s North America revenue and operating profit fell 2% and 10% in dollar terms (although EBIT was up 15% when adjusted for the sale of Speaker Bureau in 2015). Most notably, Sharp’s US revenue grew 28% y-o-y (18% in dollar terms), while operating profit jumped 38% (27% in $) and margin reached 15.2% (vs 14.2% in H115). Sharp’s overall operating profit was up 25% y-o-y in constant currency terms, while the margin came in at 12.2%, up 1.6pp on H115.
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