I’m a big fan of Alliance Pharma (LSE: APH). I like its terrific defensive characteristics: the business is involved in the acquisition and licensing of pharmaceuticals and medical products, and in the delivery of these items to patients.
I’m also impressed by the fact that the AIM business carries less R&D-related risk than conventional pharmaceutical businesses as the drugs it acquires have already completed development, meaning it is not subject to the possibility of expensive launch delays, cost-overruns and heavy regulatory costs.
What’s more, and this is something I have lauded in some depth before, I like Alliance’s dedication to acquisitions, a strategy that is building the company’s global footprint as well as expanding its portfolio of quality products (or International Star brands, as it likes to call them).
Another period of strong progress
These qualities were evident in latest trading details released last week. Between January and June, Alliance said that revenues rose 10%, to £54.5m. Like-for-like sales rose 3% in the period, illustrating the exceptional impact that its M&A-led growth strategy is having.
The result helped underlying pre-tax profit to nudge 2% higher to £12.1m. On a statutory basis, profits slumped 36% to £10.9m but this figure took on board a series of one-off costs in the period, including a write-down on Alliance’s investment in infant milk formula manufacturer Synthasia International.
All things considered it was another positive period for Alliance and it led the business to lift the interim 10% year-on-year to 0.487p per share. And things are looking good for the remainder of 2018. Chief executive David Cook said: “The second half of the year has started well. Our good underlying cash generation, coupled with the opportunities from our enlarged portfolio of International Star brands, mean we are well positioned to pursue future growth both organically and through acquisitions in line with our strategic plan.”
A brilliant long-term buy
Alliance has proved its mettle as a reliable dividend grower over the past half a decade, the business having lifted the payout by almost 50% since 2013 thanks to a largely unbroken period of earnings growth.
And even though the business is expected to record a 16% profits slide in 2018 — a reflection of those aforementioned one-off costs — it’s predicted to recover much of the shortfall with a 16% advance in 2019.
Alliance’s robust medium-to-long-term profits outlook makes the City believe that dividends should keep rising in the interim as well. And so 2017’s 1.33p per share payment is expected to rise to 1.5p in the present period, and again to 1.6p next year.
Respective yields stand at 2% and 2.2% and as well as giving rise to those predictions of extra dividend expansion, current broker projections also leave Alliance dealing on an undemanding forward P/E ratio of 16.7 times.
As I say, I’ve supported Alliance’s investment case for a long time. Its recent share price weakness means the firm is currently dealing at its cheapest for six months. But levels plunged following news of the first-half statutory profits dip so I reckon now is an especially great time to buy the stock.
