UDG shares soar on forecast of up to 16% earnings growth

Shares in UDG Healthcare jumped on Tuesday as the healthcare services provider forecast its earnings per share will rise by as much as 16 per cent this year. However, this will be dampened by a currency headache after the company switched to reporting its results in US dollars from euro this year.

The Dublin-based company said in a trading statement before its annual general meeting (agm) that first-quarter operating profit for three months to December was “well ahead” of the prior-year period, thanks to underlying growth and the impact of acquisitions.

However, a resolution at the agm on directors’ remuneration was rejected by about 20 per cent of shareholders, forcing chairman Peter Gray to say that the company will take the level of investor pushback into account.

Chief executive Brendan McAtamney, who took over on the role a year ago and received €1.9 million in compensation for the year to September 30th, will see his basic salary increase by 8 per cent this year to €600,000.

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Transformative

Last year was a transformative year for UDG, as it sold its Irish wholesale business and UK-based travel healthcare operation, for €407.5 million, with the deal unlocking a €132.1 million net profit.

UDG is now concentrated on two businesses: Ashfield, which provides drugmakers including AstraZeneca and Pfizer with outsourced services such as sales reps and healthcare communications; and Sharp Packaging, a provider of outsourced healthcare packaging in an increasingly regulated field for drug serialisation.

The company is forecasting that its adjusted earnings per share (EPS), excluding the effect of currency movements, to grow by between 13 per cent and 16 per cent from last year’s $0.318c (€0.286).

Mr McAtamney noted on a call with analysts that sterling is now 12-13 per cent weaker than it was a year ago, while the UK accounts for about 40 per cent of group profits.

Goodbody Stockbrokers analyst David O’Brien said the trading update was “upbeat” and plans to revise his own EPS estimate for the group up by 1 per cent.

Shares in UDG surged by as much as 4.3 per cent to £6.625 in London.

Trading at Ashfield in the first quarter was “well ahead of the same quarter last year, with good underlying growth supported by acquisitions”, the company said.

Profits

Divisional operating profits in the Sharp division were “moderately ahead of a strong comparable quarter” year on year.

“The group remains in a net cash position, leaving the business well positioned to continue its corporate development activities, which should serve to complement its continued underlying profit growth,” it said.

The group bought a UK-based healthcare communications business, Pegasus, in a deal worth up to £16.8 million (€19.5 million) last May and followed up in October with a £84 million (€98 million) purchase of a company called Stem Marketing, a global provider of commercial and medical audits to drug companies.

Mr McAtamney said the company’s pipeline of further potential merger and acquisition candidates is “pretty good”.

Meanwhile, the chief executive said it was too early to assess the impact of US president Donald Trump's administration on the pharmaceuticals sector. As Mr Trump has vowed to push down the price of medications, Mr McAtamney told The Irish Times that drugmakers may increasingly outsource work to companies like UDG to rein in their costs.

Meanwhile, UDG also announced on Tuesday that former CRH chief executive Myles Lee will join the company’s board as a non-executive director on April 1st.

Mr Lee retired from the top job in CRH in 2014, after five years. He was previously the building materials giant’s finance director.