Entering the US market

Alliance Pharma (APH) is continuing with its buy-and-build strategy having evolved through 35 acquisitions over a period of 20 years into a profitable, cash-generative, specialty pharma business. The company has a mix of international growth brands – Kelo-cote and MacuShield – and a bedrock of solid local low-growth products. Full year results supported the January trading statement, with strong sales of Kelo-cote and MacuShield underpinning EBITDA growth, and helping to generate strong underlying operational cashflow. The acquisition of Vamousse (third international growth brand) appears to be integrating well already and opens up the US market.

• Strategy: Since inauguration, APH has adopted a buy-and-build model, with 35 deals over 20 years assembling a portfolio of >90 products and establishing a strong track record. It is accelerating growth through investing in multi-market brands, with infrastructure supported by its bedrock products.
• 2017 results: APH continued its year-on-year growth trend with group sales of £103.3m (£97.5m), an increase of 6%. At constant currency, sales grew 3%, benefiting from exceptional sales of its two international growth brands Kelocote (+34% to £13.3m) and MacuShield (+38% to £7.3m).
• Net debt: Strong operational cashflow reduced underlying group debt ahead of expectations. However, end-of-period acquisitions were financed in cash, giving net debt of -£72.3m at 31st December 2017. Net debt/EBITDA was 2.5x, comfortably within APH’s 3.0x covenant limit.
• Recent acquisitions: Towards the end of 2017, APH completed two product acquisitions: Vamousse (head lice), its third international growth brand, and Ametop (local anaesthetic gel). Initial considerations of £9.7m and £5.6m, respectively, and inventories of £0.7m, were paid from cash resources.
• Investment summary: Recent acquisitions are forecast to boost APH to generate underlying CAGR of 8% in both sales and EPS over the next three years. On the back of this solid performance, the company is expected to continue with its progressive dividend policy. The shares are trading on a 2018E P/E of 16.1x and carry a prospective dividend yield of 1.9%, covered 3.3x.