High street carnage

Throughout history, the high street has never stood still. Names have come and gone over the years. However, the pace of change seems to have accelerated of late.

Debenhams’ collapse into administration in April was another venerable name to add to a long list of casualties in recent years. Just this week, investors woke up on Monday morning to a seven o’clock announcement that Thomas Cook had entered into compulsory liquidation.

And when the stock market opened an hour later, Marks & Spencer, a stalwart of the FTSE 100 since its inception in 1984, began officially trading for the first time as a FTSE 250 stock, following its ignominious demotion from the top index.

Short-staffed at the gene pool

Also yesterday, M&S made a shock announcement that chief financial officer Humphrey Singer has decided to leave the business after just 14 months. This follows the departure a few months ago of Jill McDonald less than two years after her appointment as managing director of Clothing and Home.

Singer will be sticking around while a successor is found, and chief executive Steve Rowe is handling clothing and home pro tem. But it leaves M&S having to find effective replacements for two key roles at a time when its attempting probably the most radical and wholesale transformation in its history.

No appeal

I’ve previously described M&S’s £750m move into a joint venture with online grocer Ocado as expensive, and something of a desperate and high-risk ‘Hail Mary pass’. A number of analysts have expressed a similar view, and I’m wondering if Singer’s departure signals there was also conflict within M&S about the Ocado deal.

Either way, the company’s 187p share price, sub-10 earnings multiple and above-6% dividend yield hold no appeal for me. Structural headwinds, risks and earnings forecast to skid lower both this year and next make it a stock to avoid in my book. 

Attractive sector and business

Alliance Pharma operates in an attractive defensive sector and with a low-risk business model. It owns or licenses the rights to more than 90 pharmaceuticals and consumer healthcare products, and generates sales in more than 100 countries.

Many of its products are sold in a limited number of local markets and require little or no promotional investment. However, it’s also building a portfolio of what it calls  International Stars — brands with significant international or multi-territory reach. Currently numbering five, these brands benefit from promotional investment and central strategic oversight.

Good value

The group today reported first-half revenue growth of 21% (including organic growth of 10%), as International Star brands, led by scar treatment product Kelo-cote, continued to perform strongly. Underlying earnings increased 15% and the board lifted the interim dividend 10%.

At a share price of 73.75p (2% up on the day), Alliance trades at 14.6 times current-year forecast earnings with a prospective 2.2% dividend yield. This looks good value to me for the strong growth on offer and with the company eyeing further “carefully targeted acquisitions over the next few years.” I rate the stock a ‘buy’.

The post Why I think this small-cap stock could trash the Marks & Spencer share price appeared first on The Motley Fool UK.

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G A Chester 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.

Business model

Alliance owns or licenses the rights to more than 90 consumer healthcare products and pharmaceuticals. With wide international reach through an extensive network of distributors, it generates sales in more than 100 countries.

Many of its products are sold in a limited number of local markets and require little or no promotional investment. Its promotional investment is focused on a small number of brands with significant international or multi-territory reach, including Kelo-cote (a scar treatment product) and Vamousse (a product for the prevention and treatment of head lice).

Valuation highly attractive

Alliance has a strong record of acquisitions and organic growth. A half-year trading update last month told us group revenue increased 28%, with organic growth of 10%. City analysts’ full-year forecasts are for revenue of £144m, an increase of £100m on the £44m it posted five years ago.

One of the biggest 50 companies on London’s junior AIM market, Alliance’s market capitalisation is £351m at a current share price of 67.6p. Therefore, the forward price-to-sales (P/S) ratio is 2.4. Meanwhile, a City consensus earnings per share (EPS) forecast of 5p (10% ahead of last year) gives a price-to-earnings (P/E) ratio of 13.5, while a forecast well-covered 1.6p dividend produces a prospective yield of 2.4%.

In a defensive sector, and with a low-risk business model and strong record of growth, I think Alliance’s valuation is highly attractive.

More highly rated stock

GlaxoSmithKline is not only a giant — its market capitalisation is £84.5bn at a share price of 1,693p — but also a more highly rated stock than Alliance on P/S and P/E. On forecast revenue of £32.4bn, its P/S is 2.6, and on forecast EPS of 115p (4% down on last year), its P/E is 14.7.

GSK’s dividend yield of 4.7%, on a forecast payout of 80p, is higher than Alliance’s but less well covered by EPS. Alliance’s yield would be 5.1%, if it paid out the same proportion of earnings as its FTSE 100 peer.

On the face of it, GSK may not seem to offer particularly good value. However, I believe there’s one big reason why it does.

Still good value

Earlier this month, GSK announced it had completed its planned transaction with Pfizer to combine their consumer healthcare businesses into a world-leading joint venture. GSK has a 68% controlling interest and Pfizer an interest of 32%. This is a step on the way to GSK demerging the joint venture from the company and listing the GSK Consumer Healthcare business on the UK stock market.

Chief executive Emma Walmsley said: “This is an important moment for the group, laying the foundation for two great companies, one in pharmaceuticals and vaccines, and one in consumer health.”

A number of analysts and institutional investors had long argued that breaking up the group would unlock value for shareholders. Neil Woodford once suggested a potential sum-of-the-parts valuation of £100bn. This compares with GSK’s current market value of £85bn, and is the principal reason why I still see good value in the stock today.

The post Why I’d still buy the GSK share price after its 10% rise appeared first on The Motley Fool UK.

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G A Chester has no position in any of the shares mentioned. The Motley Fool UK owns shares of and has recommended GlaxoSmithKline. 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.

Here, I’ll discuss the valuation and prospects of the FTSE 100 giant. I’ll also look at small-cap peer Alliance Pharma (LSE: APH), which released a trading update this morning.

Contrasting business models

Astra and Alliance may be in the same industry, but they have very different business models. The £80bn-cap Footsie group is a traditional, research-led big pharma business, trusting in heavy research investment to unearth its share of blockbuster drugs.

By contrast, £400m-cap AIM-listed Alliance licences or acquires pharmaceutical and consumer healthcare products — it has a portfolio of over 90 — at prices on which it believes it can make a good return.

Growth at a reasonable price

In today’s update ahead of its AGM, Alliance said it continues to trade well, with overall performance in line with expectations. It added: “We look ahead to the remainder of 2019 with confidence.”

City analysts are forecasting earnings per share (EPS) growth of 11% to 5.03p this year (following 12% growth last year). At a share price of 76.5p, this gives a forward price-to-earnings (P/E) ratio of 15.2.

I believe this proven, relatively low-risk business merits the P/E rating, and offers growth at a reasonable price. I think fairly consistent annual double-digit EPS growth is a credible prospect, supplemented by dividend growth from the 1.6p forecast for this year (prospective yield of 2.1%). As such, I rate the stock a ‘buy’.

Return to growth

Meanwhile, AstraZeneca has struggled for growth for many years, a string of patent expiries on some of its biggest blockbuster drugs taking a heavy toll. Revenues from these products fell off a cliff when exposed to competition from cheap generics.

It’s taken a long time for the company to rebuild its pipeline, and for new products with blockbuster potential to come through. However, that pipeline is now looking strong, and revenues and profits are forecast to start growing again.

The company has guided for core EPS of between $3.50 and $3.70 this year which, at the midpoint, would be 4% ahead of last year. At the current share price of 6,030p, and at current exchange rates, the midpoint $3.60 EPS equates to 285p and a P/E of 21.2. A running dividend of $2.80 (222p) gives a yield of 3.7%.

Heydays gone for good?

Despite the prospect of a return to growth in coming years, I reckon Astra’s P/E of 21.2 is far too optimistic. I think the heydays for the big pharma of earlier this century — when companies were making a terrific profit margin and return on capital employed — are gone for good.

There are two principal reasons behind my belief. First, every breakthrough drug sets the bar higher for the next. I think this is manifested in endemic falling returns on R&D investment in the industry. Secondly, as my colleague Stepan Lavrouk recently pointed out, public health bodies, such as the US Food and Drug Administration, are “increasingly seen to favour lower-cost alternatives to some of the more expensive options.”

For these reasons, I’m inclined to avoid Astra on its current P/E. There’s growth to come, for sure, but I don’t think it’s growth at a reasonable price right now.

The post Is the AstraZeneca share price a FTSE 100 bargain? appeared first on The Motley Fool UK.

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G A Chester has no position in any of the shares mentioned. The Motley Fool UK has recommended Alliance Pharma and 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.

However, in my view there are only a limited number of attractive buys among UK-listed pharma stocks at the moment. Today, I want to take a look at two companies I’ve been considering recently.

Hitting new highs

Big pharma firm AstraZeneca (LSE: AZN) has reported falling sales every year since 2014. But in 2018, chief executive Pascal Soriot said that the tide had turned. Sales of new medicines rose by $2.8bn compared to 2017. In 2019, total sales and underlying earnings were expected to return to growth.

The news has given a shot of adrenaline to the shares, which have risen by 35% over the last year. AstraZeneca now trades at an all-time high of more than £64 and its dividend — once a high-yield favourite — now offers a return of just 3.3%.

The story behind this transformation is that Soriot’s investments since 2013 mean sales from new products will now start to replace sales lost from older, patent-expired medicines.

The right time to buy?

Ultimately, growth depends on companies like AstraZeneca developing blockbuster new drugs that will provide $1bn+ sales for years to come. It’s hard to predict how likely this is, but City analysts are backing Soriot’s forecasts.

They expect sales to rise by 6.6% to $23.5bn this year, with earnings climbing by 5.5% to $3.65 per share. Earnings are then expected to rise by 20% in 2020, as new product sales gain momentum.

These forecasts put AstraZeneca stock on a 2019 forecast price/earnings ratio of 23, falling to a P/E of 19 for 2020. For an £81bn company, this isn’t cheap. But Soriot hopes to double sales to $45bn by 2023. If he can come close to this goal, then I think the stock would look cheap at today’s price.

AstraZeneca isn’t going to make me a millionaire quickly. But I think it could help me get rich slowly. A long-term buy.

This stock has doubled in four years

One smaller pharmaceutical firm that I’ve followed for a number of years is Alliance Pharma (LSE: APH). This specialist firm buys up established medicines and healthcare products and sells them through its distribution network.

Sales have doubled since 2015 and so has the group’s share price. Although I’m generally cautious about growth strategies which depend on acquisitions, Alliance’s strategy appears to work well.

A millionaire maker?

Figures published by the company today show that 2018 was another solid year for the firm. Like-for-like sales rose by 4% and total sales climbed 16% to £118.2m, as new products including Vamousse and Nizoral made a contribution. Underlying pre-tax profit was 17% higher at £28.1m.

Reported profits — including one-off costs — were hit by impairment charges on two products where sales have fallen below expectations, or been suspended. Although unfortunate, I don’t think this should be a big concern.

After rising by 5% on Tuesday morning, Alliance shares are trading on about 13 times 2019 forecast earnings, with a 2.5% dividend yield. If the company can continue to expand at a steady rate, I could see the shares doubling from this level.

The post Could this pharma stock help me become an ISA millionaire? appeared first on The Motley Fool UK.

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Roland Head has no position in any of the shares mentioned. The Motley Fool UK has recommended Alliance Pharma and 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.

However, could the stock be set for another big upsurge, alongside small-cap peer Alliance Pharma (LSE: APH), whose shares have seen an even bigger pullback since soaring last year?

Growth across the board

Hikma posted strong results today. These followed leadership changes and a major overhaul of the business, including the consolidation of its Generics manufacturing facilities and US distribution facilities.

Group revenue increased 7% to $2.1bn, with core operating profit up 19% to $460m, and core earnings per share (EPS) rising 31% to $1.378 (104.4p at current exchange rates). The board lifted the dividend 12% to $0.38 (28.8p).

All three of its businesses — Injectables, Generics and Branded — increased their revenues and profits. And there was growth across all three of its geographical regions: US (62% of group revenue); Middle East and North Africa (32%); and Europe and Rest of World (6%).

Very optimistic

Hikma’s shares are trading at 1,580p, as I’m writing, which is 22% below last year’s high of 2,025p. The trailing price-to-earnings (P/E) ratio is 15.1 and the dividend yield is 1.8%. While the yield is admittedly skinny, the P/E is reasonable for a blue-chip stock in the defensive pharma sector.

Furthermore, Hikma’s transformational changes and strong performance in 2018 have new chief executive Siggi Olafsson “confident that we can build on this momentum going forward,” and executive chairman Said Darwazah “very optimistic for the future.”

I can’t see Hikma’s shares doubling again in the space of a year, but with the business back on track, the longer-term outlook appears promising. I rate the stock a ‘buy’.

Unmerited de-rating

Alliance Pharma has a growing portfolio of pharmaceutical and consumer healthcare products it owns or licenses the rights to. It sells these products in more than 100 countries.

Its shares are trading at 65p, down 36% from last year’s high of 102p. I’m at a loss to understand quite why the stock has slumped so far. A £0.7m step-up in its future annual cost base, due to a raft of regulatory and accounting changes, hardly seems sufficient to merit such a de-rating. There was a hefty share sale by company founder (and now a non-executive director) John Dawson in November, but the shares had already completed much of their decline by that date.

Further growth ahead

In a trading update in January, ahead of annual results scheduled for release a week on Tuesday, Alliance said 2018 revenue was £124m — up 22% on the prior year, or up 4% excluding acquisitions. It also said “underlying profit before tax is expected to be in line with [unspecified] expectations” and that “free cash flow for the year was slightly stronger than anticipated at approximately £16.1m.”

A research note dated November on its corporate website has underlying profit before tax of £28.9m, free cash flow of £15.5m, underlying EPS of 4.66p (10% ahead of 2017), and a dividend of 1.46p (also up 10%). At the current share price, the P/E is 13.9 and the dividend yield is 2.25%.

I see the shares as very buyable, with the company having said in January: “We look forward to delivering further growth in the year ahead.”

The post Could this FTSE 100 stock double your money again? appeared first on The Motley Fool UK.

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G A Chester has no position in any of the shares mentioned. The Motley Fool UK has recommended Alliance Pharma and Hikma Pharmaceuticals. 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.

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.

The post Have £1,000 to invest? A red-hot dividend growth hero I’d buy and hold for the next decade appeared first on The Motley Fool UK.

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Royston Wild 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.

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.

The post Should you invest in Mark Slater favourite Alliance Pharma right now? appeared first on The Motley Fool UK.

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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.

Right now the FTSE 100 business is relying on favourable currency effects to drive the top line as demand in its developed territories stagnates. Indeed, foreign exchange movements were responsible for the entire 5% turnover improvement at the company between January and March, as “softer market conditions” caused underlying revenues in its Established Markets to fall 2%.

These troubles are expected to produce a 3% profits reversal in 2018. But analysts are optimistic over its earnings outlook further out, and it is expected to get firing again from next year — an 8% rise is currently expected. While hardly anything to get excited about, I am confident this should prove the bedrock for bulky profits growth down the line.

I am particularly excited by the explosive profits opportunities created by Smith & Nephew’s not-insignificant exposure to emerging markets.

Sales here again rose by double-digit percentages in the first quarter of 2018 and, as the rising economic might in these regions drives investment in regional healthcare, I am expecting sales rates to continue impressing.

Right now Smith & Nephew deals on a forward P/E ratio of 18.9 times. I reckon this is a steal given the company’s position at the coalface of artificial body part development, not to mention its growing role in the medical robotics segment.

Another great selection

Alliance Pharma (LSE: APH) is another medical mammoth that could make you a packet to retire on.

Last time I covered the business — which acquires, licences and distributes medical and healthcare products the world over — I mentioned its thirst for acquisitions that promises to keep earnings on a northward path. Since then Alliance has been at it again, the firm picking up the exclusive marketing rights to Nizoral, a medicated anti-dandruff shampoo, for £60m from Johnson & Johnson.

Alliance has the rights to market the shampoo across 15 products in the fast-growing Asia Pacific region and it becomes the firm’s fourth so-called International Star brand alongside Kelo-cote, MacuShield, and Vamousse. The vast success that the AIM-quoted company has enjoyed with these products leads me to believe Nizoral is another very exciting buy.

While Alliance is expected to endure a rare 12% earnings slide in 2018, the positive contribution of Nizoral and its other hot properties should help the company bounce back with a 14% improvement next year, or so say City analysts. And as the rollout of its blockbuster labels continues, and healthcare spending steadily climbs all over the globe, I fully expect the business to deliver brilliant profits growth.

In addition, the rate at which dividends are expected to continue rising should also be of interest to investors today. In 2018 the total payout is anticipated to rise to 1.4p per share, up from 1.33p last year and yielding 1.4%. Next year the readout moves to 1.6% too, thanks to an anticipated 1.6p dividend.

In my opinion Alliance Pharma fully deserves its elevated forward P/E ratio of 20.7 times.

The post 2 pharma stocks that could make you a fortune by retirement appeared first on The Motley Fool UK.

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Royston Wild 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.

For investors seeking strong and sustained earnings growth for many years, it’s difficult to look past London’s quoted healthcare providers.

Those that specialise in keeping us alive and maintaining our wellbeing are a classic defensive play, with medicines and care demand remaining broadly resilient regardless of broader economic considerations. And thanks to population growth, the revenue opportunities of many of these businesses are improving year after year.

One such stock I’m tipping for greatness in the years ahead is Alliance Pharma (LSE: APH). Unlike most pharmaceutical plays — like GlaxoSmithKline and AstraZeneca, whose earnings visibility are not as strong thanks to the temperamental nature of drugs R&D — this business doesn’t have to worry about the impact of such setbacks as the drugs it acquires have already passed the often-painful development process.

What’s more, the treatment areas that Alliance Pharma concentrates on are relatively niche and with very little competition, provide profits estimates with that little extra visibility.

A long term lovely

Now new investors seeking exceptional earnings growth from the off are likely to be disappointed, with City analysts tipping a 12% fall in 2017.

That said, I would still consider now a terrific time to load up on the AIM-quoted business. Firstly, Alliance Pharma is expected to bounce back straight away from the aforementioned projected rare earnings dip with a 10% advance next year. And right now the medicines mammoth also deals on a pretty undemanding valuation, with the firm rocking a forward P/E ratio of 16.8 times.

This reading is also pretty reasonable when you consider the exceptional earnings possibilities created by Alliance Pharma’s commitment to acquisitions. It spent £16m on M&A action in 2017 alone to bolster its global footprint and, thanks to its strong balance sheet, free cash flow jumped to £21.7m last year, from £13m in the prior period. So investors can look forward to further earnings-driving buys in the years ahead.

Fuelled up

Applegreen (LSE: APGN) is another stock I’m tipping to thrive as it also splashes the cash to generate electric profits growth.

The AIM-listed stock, a major retailer at petrol stations in the Republic of Ireland, has spent a fortune on expansion in recent times and, as a result, the number of locations it operates from has leapt from 64 in 2009 to 342 just eight years later. And Applegreen’s growth strategy is also seeing it spread out onto foreign shores to boost its revenues possibilities still further.

Unlike Alliance Pharma, the Dublin company is not expected to endure any near-term earnings turbulence and it’s predicted by City analysts to generate a 5% bottom line improvement in 2018. And growth is expected to accelerate to 2019 next year as its expanded geographic presence delivers the goods.

Right now, Applegreen carries a forward P/E ratio of 23.3 times. This may be high but it should prove no barrier to further share price advances as the company’s market value has also swelled by more than a third over the past 12 months alone.

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Royston Wild has no position in any of the shares mentioned. The Motley Fool UK owns shares of and has recommended GlaxoSmithKline. The Motley Fool UK has recommended Alliance Pharma and 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.

Expansion into the USA

The international speciality pharmaceutical company has a long record of acquiring established niche products and now owns or licenses the rights to around 90 pharmaceutical and consumer healthcare offerings with sales coming from more than 100 countries. Highlights in today’s report included a 34% uplift in sales of scar reduction product Kelo-cote and a 38% rise in sales of macular pigment supplement MacuShield. Such fast-growing brands bode well for future financial results and on top of that, the acquisition programme could find more winners. In December, the company acquired lice treatment Vamousse and anaesthetic cream and gel Ametop, which should help to power the firm’s growth as it moves forward.

Chairman David Cooke explained that 2016 was a transformational year for the company during which it integrated its mammoth acquisition of the Sinclair Health Products business. Happily, all the firm’s hard work has borne fruit in 2017 with these good results and cash generation, which Mr Cooke said positions the firm to “pursue growth both organically and through further acquisitions in 2018.” The firm has already set up a US affiliate during 2018, suggesting the possibility of gathering sales from across the pond driven by Vamousse, which already derives 80% of its sales from America. The US is the largest consumer healthcare market in the world, which means the potential is exciting.

Growth on track

The shares are up around 110% over the last four years due to generally rising earnings. Yet City analysts following the firm expect earnings to slide 13% during 2018 before bouncing back by 11% in 2019. Earnings figures can be messy when a company is highly acquisitive so it will be interesting to see how things pan out. I think the important thing is that analysts forecast continuing rises for revenue and for the dividend over the next couple of years, suggesting the growth train remains firmly on the rails.

Mark Slater was influenced by his father Jim Slater’s Zulu Principle methodology for picking growth stocks, but I’m sure he has refined his strategy himself to produce the outstanding record he has achieved over the years with his Slater Growth fund. Whenever I see his name appear as a major holder of a company’s shares I tend to dig deeper, as now with Alliance Pharma.

At today’s share price close to 68p, you can buy some of the shares on a forward price-to-earnings ratio just over 13 for 2019 and the forward dividend yield runs at around 2.3%, which strikes me as a reasonable valuation for a business with so much potential.

The post Mark Slater favourite Alliance Pharma plc could make you rich appeared first on The Motley Fool UK.

More reading

• 3 reasons why Barclays shares could crash in May!
• I’ve just bought this bargain-priced FTSE 100 bank and it’s not Barclays or Lloyds
• This value stock could turn £2k into £2,860 this year
• Thank goodness I didn’t buy Greggs shares in 2025
• Legal & General shares: still seen as a dividend stock — but that may be outdated

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.