The coronavirus crisis has knocked back the share price of small-cap healthcare company Alliance Pharma (LSE: APH). At 66p, it’s around the level it was at the beginning of last autumn.
Back then, the stock had just begun its ascent from a long period of consolidation. So shareholders will likely feel frustration. But the good news is the underlying business appears to be in pretty good shape and trading well through the crisis.
Holding up well
In today’s full-year results report, chief executive Peter Butterfield explained the supply chain is “holding up well” in this crisis. But demand is “harder to forecast.” And he does anticipate lower sales from the Asia Pacific region during the first half of 2020. For now, the company is assuming a gradual recovery in that geography during the second half of the year.
Meanwhile, Butterfield reckons revenue from the UK and mainland Europe will be lower because of the crisis, “but to a lesser extent.” There’s a higher proportion of prescription medicines sold in this region, which should help the situation.
To put things in perspective, around 62% of last year’s revenue came from the UK, Ireland and mainland Europe. The rest came from other international regions. So, the hit from the effects of the coronavirus pandemic looks as if it will be limited, and most business will likely carry on through the crisis.
Alliance Pharma owns or in-licenses the rights to more than 90 consumer healthcare and pharmaceutical products and sells to more than 100 countries via a network of distributors. So, the company occupies a niche in an attractive sector. And we can see from the five-year financial and trading record that cash flow has been consistent and supportive of generally rising earnings.
Preserving cash
But the directors are being cautious and they’ve axed the full-year dividend “to prudently preserve cash” because of the pandemic. Prior to the crisis, the company had been doing a good job of raising its dividend a bit each year.
The directors’ move will disappoint some some shareholders, but I think it’s wise. The crisis is open-ended, and no one knows for sure what will happen next. Perhaps all companies should suspend their dividends. As an investor, I’d rather hold shares in a company that gives itself every chance of survival than one that weakens its finances by doling out cash it could end up needing.
For what it’s worth, today’s full-year figures are good. Revenue rose by 15% compared to a year earlier, underlying earnings per share elevated by 12% and free cash flow shot up by 81%. The net debt figure reduced by 31%. Indeed, Alliance Pharma has been growing well, both organically and via acquisitions.
I reckon the company is in good condition for surviving and trading through the crisis and will likely return to its growth trajectory later. Meanwhile, I’d be happy to pick up a few of the shares now.
