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Why I’d buy this dividend-growing share alongside AstraZeneca

Pharmaceutical giant AstraZeneca looks like it’s moving into a period of profit growth after several years of contracting earnings. New products and drugs emerging from the Research & Development pipeline have been powering the firm’s transformation.

However, in the wider healthcare sector, I also like the look of Cello Health (LSE: CLL), which operates as a healthcare-focused advisory company. City analysts following the firm have pencilled in high single-digit advances in earnings for this year and next, and much of the progress is coming from the firm’s fast-growing operations in the US.

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Strong progress in the US

I last wrote about the company in March when we heard that the US part of the business had delivered 29% of overall revenues in 2018. However, today’s interim results report reveals to us that just over 34% of its net revenue came from US operations in the first six months of 2019, suggesting significant progress across the pond.

Overall revenue rose almost 7% compared to the equivalent period last year and adjusted earnings per share moved nearly 12.7% higher. Like-for-like revenue at constant currency rates notched up by 4.5%, indicating strong organic trading. At the halfway point in the year, Cello health declared net funds of £2.2m, which compares to a net debt figure of £5.4m six months earlier. Cash flow has been “strong”, the directors said in the report. They applied their seal of approval by pushing up the interim dividend by 4.5%. It seems to me the financial figures are moving in the right direction.

During the period, the company developed its new office in Berlin, which is now fully functioning and “servicing European clients”. It also acquired a firm in the US called ISS, which “strengthens” its advisory capability in America adding“critical regulatory expertise”. ISS is a scientific consulting firm specialising in strategic counsel and regulatory support for the healthcare industry, which is clearly a good fit with existing operations.

Global ambitions

The pursuit of growth remains very much on the agenda. Indeed, the goal is to build a “global” advisory company in the healthcare sector and, so far, that ambition seems to be on track. Cello Health reckons that 24 of the “top”25 global pharmaceutical businesses are already clients, as well as “a wide range of biotech and other clients”.

Meanwhile, operating profit received a boost of around £0.2m because of the strength of the dollar against sterling during the period. Looking forward, the directors expect that effect to continue for the rest of 2019, alongside ongoing strong cash inflow. And the firm plans to spend some of the money it’s making on growth-enhancing acquisitions. There is a pipeline of opportunities that the directors are already appraising.

With the share price close to 127p, the forward-looking earnings multiple for 2020 runs near 12.5 and the anticipated dividend yield is a little over 3.3%. I think the shares are attractive. 

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Kevin Godbold has no position in any share mentioned. The Motley Fool UK has recommended AstraZeneca. 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.