MIDAS SHARE TIPS UPDATE: Purring along... our Animalcare tip has trebled in seven years
The British love their pets, but so do the continental Europeans. The UK boasts around 17million cats and dogs, but one in three German families are pet owners, Spain boasts more than eight million cats and dogs and even Belgium has almost 1.9million cat owners.
These pet-loving populations bode well for the recent merger of British animal health group Animalcare with its larger Belgian counterpart, Ecuphar.
Midas tipped Animalcare in 2010 at 121½p. Today the shares are 367½p and the business is expected to deliver further significant growth.
Healthy: Pet ownership is rising and Animalcare makes drugs for pets
Animalcare makes drugs for pets, such as painkillers, heart disease tablets and antibiotics. It also makes microchips for cats, dogs and horses, which identify them and boost the chance of their being reunited with owners if they go missing.
Over the past seven years, Animalcare has shed non-core businesses and grown steadily, particularly under the auspices of Iain Menneer, who became chief executive in 2013.
More than 90 per cent of group revenues are generated in the UK, but Menneer has long been keen to increase Animalcare’s continental presence. Hence the deal with Ecuphar, a much larger business based in Belgium, with sales teams across the Continent, including in Spain and Germany.
In 2016, Animalcare delivered revenues of about £15.5million and pre-tax profits of £3.4million. Ecuphar’s revenues were £68million and profits were £5.1million. The British firm enjoys higher margins but Ecuphar is a more substantial business and the combination of the two should produce a material rise in sales and profits.
Ecuphar was founded by entrepreneur Chris Cardon in 2001. He is now chief executive of the enlarged business, with a 23 per cent shareholding.
Menneer is chief operating officer, so he is expected to continue playing a significant role in the company.
Merging two companies from different countries and creating one board can be tricky, but Cardon and Menneer share a determination to expand across Europe, cross-selling each other’s products to respective clients, gaining new business and making acquisitions where appropriate.
There is also a commitment to progressive dividends. These rose by more 40 per cent over five years to 6.5p in 2016. A policy of dividend growth remains central to the business and, with Cardon owning more than 23 per cent of the shares, that is unlikely to change.
Midas verdict: Pet ownership is rising across Europe and people are increasingly prepared to spend money on drugs and healthcare. Vet products are also more sophisticated than ever, so animals are living longer but costs are rising. Animalcare and Ecuphar were already benefiting from these trends. Together they will do even better. At 367½p, existing investors should stick with the stock, while new ones could find the shares rewarding.
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