Making acquisitions can be risky if integration doesn't go smoothly or the performance doesn't turn out as expected. But occasionally predators can pick the right target and reap significant rewards.
This seems the case with FTSE 250 constituent Dechra Pharmaceuticals (DPH) whose corporate activity last year has transformed the veterinary medicines and services specialist, as illustrated by today's interim results.
In May 2012, management expanded its interests into farm animal products by spending £112.5 million buying Netherlands-based Eurovet Animal Health.
The deal helped Dechra’s pharmaceutical sales in Europe jump 69.7% during the six months to January.
This figure would have been higher but for distribution arrangement changes in France and Germany, which are expected to be reversed in the second half of the year.
The purchase of Eurovet is one of the key reasons why analysts are forecasts a significant jump in pre-tax profits for the financial year to 30 June 2013. Consensus forecast is looking for £43 million against £21.7 million a year earlier.
Dechra’s overall results for the half-year period reported today (26 Feb) feature a 29.2% jump in pre-tax profit to £11.5 million and 15.1% boost dividend hike to 4.34p per share.
Its results were also driven by strong organic growth in the US where pharmaceutical sales were up 8.7% to £10 million.
The interims are impressive but widely expected by analysts, which is why earnings forecasts remain unchanged and the shares price has eased back 1.1% to 684p. Yet analysts retain a bullish stance as Dechra delivers on its growth strategies in targeting Europe and the US.
Analyst Chris Glasper at N+1 Singer says Dechra's outlook statement is a 'touch cautious' but believes the investment case is 'very much intact' even if the shares pause for breath in the short term. He comments: ‘We are encouraged by the progress made in integrating Eurovet and boosting the pipeline in the US.’
Glasper adds that integration looks to be proceeding at, or ahead of, plan. ‘We tipped Dechra as a key buy for the year on the basis the Eurovet acquisition would prove transformational for the group. The addition of complementary products, geographies, manufacturing facilities and, importantly, an enhanced development capability, gives multiple opportunities for growth.'