Jefferies repeats 'buy' rating on Dechra after results tumble

Jefferies, which reiterated its 'buy' rating and 2,726p target price on the FTSE 250 resident on Monday, pointed to growth of 21.1% globally and a better-than-expected 18.2% sales growth in North America.

Analysts looked fondly on margins expanding "despite some headwinds from increased distributor consolidation and increased investments in sales force" and felt the outlook for 2019 "is positive and signals good progress from recent M&A".

Dechra's North American sales increase was driven primarily by the US but also with strong growth in Canada, where all growth was organic. American operating profit margins remained flat at 32.5%, while sales of Amoxi-Clav, Vetivex and Zycortal were particularly strong despite its Carprofen range being hit by competition with distributors.

In the EU growth of 11.4% came amid benefits from acquisitions as the group exited the contract manufacturing business through the year. Dechra performed ahead of the market in the majority of geographies.

Market dynamics could see further consolidation of distributors, Dechra suggested, with faster change of veterinary distributors and increased marketing of veterinary distributors' own generic products.

While increased consolidation could see increased buying power of distributors, Jefferies felt Dechra's "high value, innovative portfolio means it is less exposed to these changes and there is value in increasing volumes through consolidated distributors".