Investors were clearly expecting more from UDG Healthcare (UDG) as a lack of upgrades and weakness in the Sharp division hit its shares by 5.8% to 877p.
Before today the shares had risen 27% since February. UDG provides outsourced and communication services to the medical sector, as well as contract packaging through its Sharp division, which historically has experienced patchy trading.
Operating profit in the Sharp division declined 2% to $18.9m due to higher project churn in the US commercial business during the six months to 30 September 2017.
This had a knock-on effect for the following six months as an improved US performance at the beginning of 2018 was unable to offset weaker earlier trading.
UDG expects ‘mid-single digit’ underlying operating profit growth in the Sharp business for the year to 30 September 2018, implying lower than expected growth.
WHAT DO THE ANALYSTS THINK?
Broker Liberum analyst Graham Doyle says Sharp missed his forecasts by 5.5% but argues the approaching serialisation deadline should boost trading in 2019 to ‘above normal growth.'
Serialisation services should help companies track and trace products in transit.
Demand for these services is expected to rise ahead of new regulatory requirements in the European Union next year. All prescription medications in the EU will need to be serialised to cut the amount of false drugs in the supply chain.
Doyle also flags management maintained guidance for overall trading, suggesting there is ‘plenty of growth’ elsewhere in the business to offset disappointing short-term trading.
Davy Research analyst Allan Smylie remains confident in UDG’s prospects, believing the company can deliver high organic growth with its strong balance sheet for future M&A.
