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MIDAS SHARE TIPS: Petcare firm Dechra will have its day again

Health: Pharmaceuticals for pets are big business

SHARING TIPS FROM MIDAS: When the going gets tough, sometimes man’s best friend has to sit in the back, but Petcare Dechra will have their day again

When the going gets tough, sometimes man’s best friend has to step aside. It’s a problem for Dechra Pharmaceuticalsthe firm your vet turns to when your cat needs a laxative or your salamander wants antibiotics.

The animal health company is fighting the fires on several fronts. Its “pets” business (meaning pets for you and me) looks likely to suffer from a cost of living crisis which has already seen some families abandon their dogs and cats and many others plan to spend less on Tiddles’ welfare. After a lockdown pet ownership boom that gave Dechra a boost, any downturn in that market will create unflattering comparisons.

Elsewhere, the company has a division providing treatments for farm animals, where high raw material costs as well as epidemics such as bird flu, make the market uncertain. This combination of issues made the market jittery, which could explain the crash in the company’s share price after Dechra released interim numbers this week.

The numbers were in line with lower expectations, but sales and earnings were held back by several separate issues, forcing analysts to revise down their forecasts for the full year. The question now is whether these issues are temporary, and if so, how long some of them might last.

Some answers are easier than others. Dechra’s decision to open its own sales and marketing branch in South Korea, losing a distribution partner, may have temporarily affected sales in the region, but it is already on track. The change of nutrition partner in Japan, which also weighed on sales, also seems fixable.

Health: Pharmaceuticals for pets are big business

Health: Pharmaceuticals for pets are big business

Analysts are focusing more on “destocking” in the United States, where Dechra says wholesalers appear to be holding less inventory, creating lower sales. It’s unclear how quickly this could unfold and if this is a more general trend.

Dechra shares initially fell more than 15% but have since recovered slightly – to £27.56 on Friday they were down 33% at this time a year ago.

Many analysts believe that the fall is exaggerated. Investec’s Andrew Whitney points out that the animal health market is “resilient” and adds that the company’s new drug pipeline, including a long-acting insulin for dogs, should help it outperform its peers. Investment banker Stifel’s Max Herrmann says the company’s lower numbers reflect a positive decision to invest in research and development, and expects a return to more normal growth patterns in the rest of the year.

The question investors need to ask is whether a still robust pet care market is enough to keep Dechra afloat, or whether the dog has had its day.

Midas verdict: For a company that makes equine sedatives, Dechra certainly managed to scare horses again this week. The crash in the company’s share price indicates that many were unprepared for the weaker numbers and are worried about the market in which Dechra operates.

However, it may present a buying opportunity for the bravest. Midas has long been a fan of Dechra, first tipping the shares to £3.97 in 2008 but urging investors to sell when they hit close to £50 in September 2021.

At £27.56 this weekend, the shares are trading at 24 times forward earnings and are well below that level. Despite the cost of living crisis, the pet care market appears relatively robust and Dechra’s pipeline is solid. Buy on this weakness.

Traded on: main market Teleprinter: HPD Contact: or 01939 211200

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