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Alliance Pharma – product rights acquisition, looks good

By Tom Winnifrith & Steve Moore | Sunday 3 December 2017

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from ShareProphets). I have no business relationship with any company whose stock is mentioned in this article.

Alliance Pharma (APH) has announced a $7.5 million acquisition from medical technology company Smith & Nephew, with CEO John Dawson emphasising “the acquisition will be immediately earnings enhancing, accretive to our underlying return on invested capital, and it fits well in our existing bedrock business operations”

The acquisition is of the rights to Ametop, a topical anaesthetic gel product used for numbing the skin prior to intravenous injection or cannulation, with it also added “in addition to the Ametop rights, Alliance will be acquiring inventory which is expected to have a value of approximately US$0.4 million”. In the 12 months to 31st October 2017, Smith & Nephew derived sales of Ametop of $2.8 million, with approximately 75% of sales from the UK and Republic of Ireland.

With Alliance’s buy-and-build experience, the move further boosts confidence in forecasts for earnings per share to rise to nicely above 4p this year and then towards 5p next year, with a dividend per share of 1.3p (+10% for the half-year to 0.443p – to be paid on 11th January to shareholders on the register on 22nd December), rising to 1.5p next year.

It does also mean underlying net debt/EBITDA will increase to approximately 2.3x, though reliable and proven cash generation reassures on this – and this is further reflected in a recently agreed increase in debt covenant from 2.5 times to 3 times. The shares are now up from our 49p offer price addition to the Income portfolio earlier this year to around 59p, but with the earnings multiple and dividend yield still very reasonable we target well above 60p.

As such, continue to hold tight.

This article first appeared on the Nifty Fifty website which Tom Winnifrith runs with Steve Moore & Lucian Miers. To access the website ahead of the next share tip from Tom & Steve and a new shorting piece from Lucian shortly click HERE

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