Investors are excited by Dechra Pharmaceutical’s (DPH) proposed acquisitions of AST Farma and Le Vet Beheer for a combined €340m announced on 25 January, prompting a 13% share price rally over two days.

Dechra is an international veterinary pharmaceuticals business that derives approximately two-thirds of sales from its companion animal products, essentially medicines for cats and dogs.

We believe the acquisitions are a good strategic fit for Dechra as Le Vet and AST Farma derive approximately 80% of their revenue from companion animal products. The remaining sales are generated equally from treatments for horses, poultry, pigs and cattle.

AST Farma develops generic treatments and sells them directly to vets, while Le Vet sells products through a European network of marketing partners, including Dechra.

The deals are expected to boost underlying earnings per share in the year to 30 June 2018 and be ‘materially accretive’ to earnings in 2019. Investment bank Jefferies reckons they could boost earnings per share by between 11% and 17%.

Jefferies says the €340m price tag implies a multiple of 24.4 times earnings before interest, tax, depreciation and amortisation. The broker expects the price to be ‘far lower’ in reality thanks to the significant growth potential delivered by the deal alongside cost, sales and manufacturing synergies. (LMJ)

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