2019 has proved to be a top year for Dechra Pharmaceuticals (LSE: DPH). It’s up 44% thanks to a string of trading updates that have shown sales of its animalcare products taking off.
But Dechra is no flash in the pan. Annual earnings have long been growing by double-digit percentages, and if recent research is anything to go by, this FTSE 250 firm is likely to go from strength to strength.
A study from The Business Research Company, for instance, suggests that the value of the global healthcare market will rise at a compound annual growth rate of 8.9% in the four years to 2022 to reach $11.9trn, speeding up from the 7.3% increase between 2014 and 2018.
And one of the reasons behind this anticipated step-up is the soaring value of the veterinary healthcare region, a segment the study suggests will be the second-fastest healthcare segment (behind only biologics) to 2022 and rising at a compound annual growth rate of 10.9%.
Animal magic
It’s no surprise that drugs development for animals is considered to be one of the world’s most-exciting healthcare sectors. The food demands of a fast-growing global population means that treatments for livestock are heading through the roof. And at the same time, the amount of money that people are spending on their companion animals is heading higher and higher.
Even a quick glance at Dechra’s robust results this year show just how strong momentum is in this particular medical market. Even in spite of some supply-related problems earlier in the year, sales at the company still soared 18.7% at constant currencies in the 12 months to June 2019, to £481.8m.
And it’s not just that Dechra is riding a rapidly-expanding market. As the business noted of fiscal 2019: “We have continued to outperform in almost all markets in which we operate” and particularly so in the gigantic US marketplace. The results pay testament to the company’s aggressive approach to M&A, one which has boosted its cabinet of market-leading products and turbocharged its product pipeline, as well as recent steps to beef up its R&D investment.
A dividend dynamo
What’s more, sales rates aren’t the only reason to celebrate Dechra right now. Last year, underlying EBIT margins jumped two percentage points to 26.4%, a result which, combined with that booming top line, drove operating profits 14.4% higher to £39m.
Last year’s exceptional performance prompted the firm to hike the annual dividend by almost a quarter, to 31.6p per share. And it should come as no surprise that City analysts expect Dechra, supported by an anticipated 8% year-on-year earnings rise, to hike it again in fiscal 2020, to 34.6p.
So forget about the pharma play’s low 1.2% dividend yield and high P/E ratio of 30.5 times, I say. Given the probability of strong profits and payout increases well into the next decade, I reckon Dechra’s a hot share to buy for 2020 even at current prices.
