RBC Capital Markets lowers target price on Dechra Pharmaceuticals

Analysts at RBC Capital Markets lowered their target price on veterinary drugmaker Dechra Pharmaceuticals from 4,200.0p to 4,000.0p on Thursday following the group's full-year results a week earlier.

RBC Capital Markets said it had updated its model on Dechra after the results and to also reflect the firm's major acquisitions of Piedmont and Med-Pharmex.

For the 2023 and 2024 trading years, RBC said it was roughly 3.2% and 5.1% ahead of consensus on revenue, respectively, and 3.9% and 6.8% below on earnings per share estimates.

However, the Canadian bank said it sees "meaningful improvements" in the medium term with a 2023-26 earnings per share compound annual growth rate of 52%, and believes recent deals have "greater merit" than just the numbers alone, increasing Dechra's intrinsic value.

"We value Dechra in 18 months using a FY23e P/E of 29x and EV/EBITDA of 20x. These represent a 10% (from 15%) discount to market leader Zoetis due to Dechra's smaller size and lower growth rate," said RBC, which reiterated its 'outperform' rating on the stock.

"This leads to a fair value of £36 to which we add our risk-adjusted valuation of £4 for Dechra's novel portfolio pipeline, for a total of £40 (from £42 previously) with the move in PT driven mainly due to lower valuation multiples from peers."

Reporting by Iain Gilbert at Sharecast.com