UDG Healthcare boosted by Barclays upgrade

Shares in UDG Healthcare got a shot in the arm on Thursday as Barclays bumped its rating up to 'overweight' from 'equalweight', citing upside risk to earnings.

"The UDG equity story is underpinned by favourable fundamentals, a strategic drive towards higher growth and margin businesses, and an unlevered balance sheet to capitalise on a good supply of M&A opportunities.

"Whilst this has been true for some time, we took a neutral stance owing to the potential for earnings downgrades as well as a full valuation."

However, having recently spent time with management, who were confident and upbeat about the business, and given supportive competitor commentary and Barclays' analysis of individual businesses, the bank now expects earnings upgrades and reckons management guidance is conservative.

Barclays noted that management said the commercial & clinical segment, which has been an area of concern, was actually an area of optimism for 2019, particularly the US business.

It also pointed out that the stock's valuation has contracted meaningfully from 24x PE 2019E last May to 15.8x, offering a "compelling" entry point, hence the upgrade.

Barclays, which cut its price target for UDG to 720p from 770p, added that the pipeline for M&A remains strong, with higher growth and margin businesses a continued focus, which is another source of upside risk.

At 1545 BST, the shares were up 4.3% at 621p.