Should you invest in Mark Slater favourite Alliance Pharma right now?

I reckon there’s a lot to like about the steady growth proposition in Alliance Pharma plc (LON: APH).

| More on:

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

Speciality pharmaceutical company Alliance Pharma (LSE: APH) appears as the second-largest holding in the Slater Growth Fund, which is run by outperforming fund manager Mark Slater.

In 1992, Slater helped his dad, Jim Slater, research and edit the well-known investing book The Zulu Principle, and he invests using a strategy similar to the one his father once employed. He co-founded Slater Investments in 1994 and, as the firm’s chief investment officer, he’s ranked as one of the top-performing UK fund managers over the past decade.

A time-tested strategy that works

My guess is that Slater has developed and evolved the Zulu Principle strategy to help him achieve such a good investment record. However, he’s in print as saying that the primary valuation tool he uses to select shares is the price-to-earnings/growth ratio, or PEG, which featured strongly in the book. The PEG compares a firm’s valuation against its growth rate and is aimed at identifying growth available at a reasonable price. He also looks for sustainable and above-average earnings growth prospects, strong cash flow, the presence of a competitive advantage in the firm’s operations, a positive recent trading statement, and an absence of “heavy” directors’ selling of the firm’s shares and, “ideally”, some recent directors’ share buying.

Alliance Pharma must have once satisfied all of those conditions, but the firm has been in the fund for a long time. Slater once said that when he finds a firm that satisfies his search requirements he’s reluctant to let it go because they’re rare. He tends to hold on to the growth stocks he buys for a long time to allow the growth potential to play out. And in the case of Alliance Pharma that ‘hold’ strategy is working out well.

I last wrote about the firm in March when the share price was close to 68p, and the forward P/E rating was a little over 13 for 2019, which I thought was “a reasonable valuation for a business with so much potential.”  Today’s share price of around 89p has pushed up the forward P/E rating to around 17, suggesting that investors have ironed out the valuation anomaly I spotted six months ago. However, today’s half-year figures are good. Constant currency revenue moved 12% higher compared to the equivalent period last year, like-for-like currency-adjusted revenue increased 4%, and underlying earnings per share rose 4%. The directors described the outcome as “in line with expectations” and pushed the interim dividend up by 10% in a show of confidence in the outlook.

Growth on the agenda

During the period, around 47% of revenue came from the UK and Ireland, 31% from wider international markets and 22% from mainland Europe. Growth is on the agenda and the firm aims to expand both organically and through acquisition. Non-executive chairman David Cook explained in today’s report that growth initiatives during the period included the creation of an Alliance office in the US, the acquisition of Nizoral, which brings “increased scale and opportunities for us in the Asia Pacific region” and the recent UK approval of Xonvea, which offers “additional opportunities for growth in the medium term.” 

The outlook is positive and I can see why Slater wants to keep hold of shares in this steady growth firm. I think the stock is attractive.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Kevin Godbold has no position in any of the shares mentioned. The Motley Fool UK has recommended Alliance Pharma. 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.

More on Investing Articles

Smiling family of four enjoying breakfast at sunrise while camping
Investing Articles

How I’d turn my £12,000 of savings into passive income of £1,275 a month

This Fool is considering a strategy that he believes can help him achieve a stable passive income stream with a…

Read more »

Person holding magnifying glass over important document, reading the small print
Investing Articles

2 top FTSE 250 investment trusts trading at attractive discounts!

This pair of discounted FTSE 250 trusts appear to be on sale right now. Here's why I'd scoop up their…

Read more »

Smiling young man sitting in cafe and checking messages, with his laptop in front of him.
Investing Articles

3 things that could push the Lloyds share price to 60p and beyond

The Lloyds share price has broken through 50p. Next step 60p? And then what? Here are some thoughts on what…

Read more »

Young female business analyst looking at a graph chart while working from home
Investing Articles

£1,000 in Rolls-Royce shares a year ago would be worth this much now

Rolls-Royce shares have posted one of the best stock market gains of the past 12 months. But what might the…

Read more »

Investing Articles

Are HSBC shares a FTSE bargain? Here’s what the charts say!

There are plenty of dirt-cheap FTSE 100 banking stocks for investors to choose from today. Our writer Royston Wild believes…

Read more »

Three signposts pointing in different directions, with 'Buy' 'Sell' and 'Hold' on
Investing Articles

Just released: Share Advisor’s latest ‘Hold’ recommendation [PREMIUM PICKS]

In our Share Advisor newsletter service, we provide buy, sell, and hold guidance for our universe of recommendations.

Read more »

Investing Articles

Investing £5 a day could help me build a second income of £329 a month!

This Fool explains how £5 a day, or one less takeaway coffee, could help her build a monthly second income…

Read more »

Smart young brown businesswoman working from home on a laptop
Investing Articles

2 FTSE income stocks investors should consider buying in April

Income stocks are a great way to build wealth. Our writer details two picks she believes investors should consider snapping…

Read more »