Yesterday saw the release of Adcock Ingram’s interim results for the 6 months ending 31 March 2009. Adcock has been around for a long time, having been founded in Krugersdorp some 116 years ago! It is now a major local player in the prescription, generic, and OTC market and provides other products and services. From humble beginnings the company has grown considerably, and is currently valued at R 7.7bn.
Adcock was unbundled from the Tigerbrands stable last year in August, and since then the share price has performed strongly, moving up over 30% during the same time that the ALSI is down over 14%!
In the period of review Adcock was able to increase turnover by 23% and declare a maiden dividend of 70c a share. Investors will be hopeful that another dividend will be declared at year end. A year end dividend declaration of 70c would result in the company trading at a dividend yield of 3.15%, which is lower than the market, but to be expected of a pharmaceutical company. Pharmaceuticals are typically considered growth shares and therefore trade at a premium to the market.
Adcock has been able to grow turnover and profits (7%) over the period, but the company has also felt the pinch of the recession, as margins declined by 8% to 49%. This is still a good margin when compared to other industries. Adcock is able to retain a high margin owing to the large barriers to entry that companies in this sector enjoy, and also partially explains why it trades at a premium to the market.
In addition to the results released yesterday, Adcock this morning announced that the DTI has approved certain capital expenditure to qualify as strategic industry project expenditure. This program has been rolled out by government to encourage capital expenditure in strategic industries in an attempt to stimulate the economy. Companies are incentivised to participate in this program by being granted tax relief. In Adcock’s case the tax relief will amount to approximately R128million over four years, but the company aims to fully utilize this allowance in three years.
Despite being a sizeable company, Adcock is still much smaller than Aspen, which has a market cap north of R 20bn. The other listed pharmaceutical company on the JSE is Cipla, but it only accounts for approximately 5% of the pharmaceutical index. Adcock previously attempted to purchase Cipla, and made a firm offer as recently as 9 April of this year, but problems arose with Cipla’s principal supplier, and Adcock subsequently withdrew their offer. Adcock’s board believed the offer was beneficial to both parties.
Enjoy your weekend. Good luck to the Springboks tomorrow!
Take care,
Mike Browne
info@seedinvestments.co.za
www.seedinvestments.co.za
021 9144 966