I think these 2 fast-recovering FTSE 250 pharma growth stocks could make you richer
FTSE 100 pharmaceutical giants AstraZeneca and GlaxoSmithKline may dominate investors thoughts, but smaller players could also inject more excitement into your portfolio.
Funny pharm
Although FTSE 250-listed Dechra Pharmaceuticals(LSE: DPH) is trading 213% higher than five years ago, it crashed last summer and still trades almost 25% lower than it did six months back. As Kevin Godbold reported at the time, the plunge came even as the company posted 14% revenue growth and 21% earnings growth.
The collapse was triggered by a management warning that a major US supplier is moving onto its patch in the UK and mainland Europe, upping competition. Today, the international veterinary pharmaceutical operator issued an update for the six months to 31 December, which said trading “was strong and in line with management expectations,” with reported group net revenue up 18%. Europe and North America are both doing well, helped by the temporary market absence of a competitor product Zycorta in the US.
High synergy
The £2.37bn company has also completed its Brazilian acquisition Venco, while two other recent acquisitions are performing strongly, creating material synergies, andBrexit contingency preparations are “progressing well.” There was no mention of US competition, which may explain why the shares are down 0.7% today, despite many positives, in line with FTSE 250 slippage.
Dechra has regularly posted double-digit earnings growth in recent years and City analysts expect it to grow 14% this financial year and next. However, trading at a forecast valuation of 26.3 times earnings, you pay a price for success.
Dividend policy is progressive. Last year, payouts were hiked 19%, although it yields just 1.2%, with cover of 3.3. We may hear more about the US challenge when full-year results are published on 25 February. Right now, though, Dechra looks tempting.
Road to recovery
Generic drug specialist Hikma Pharmaceuticals(LSE: HIK) has also struggled after suffering three successive annual drops in earnings (2015, 2016 and 2017), but now seems to be on the way back.
The FTSE 250 stock is up 56% in the last 12 months. City analysts calculate that earnings jumped 23% in 2018 and will rise 3% and 8% over the next couple of years. As Ed Sheldon sets out here, the group was forced to issue a series of profit warnings but has recovered strongly thanks to positive broker reports, upbeat trading updates, and increased guidance for its injectables and generics businesses.
Going anti-viral
Sadly, you’ve missed the best of the recovery (unless you listened to Ed), so what’s the outlook today? Hikma still only trades at 15.3 times forecast earnings, so doesn’t look overpriced. Again, this is a growth rather than dividend stock, although the yield of 1.9% has cover of 3.4.
Hikma is also winning new contracts, signing in January an exclusive licence to distribute one of Beijing Sciecure Pharmaceutical’s niche injectable anti-viral medicines across the US for a minimum eight years, with a two-year option to extend. Last month, its US subsidiary launched a generic equivalent to seizure treatment Lundbeck’s Onfi. This £3.83bn company is in fine form and worth considering, if you wish to inject a bit of growth into your portfolio.
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harveyj has no position in any of the shares mentioned. The Motley Fool UK has recommended Hikma Pharmaceuticals. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.
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