Shares in Vectura (LSE: VEC) are shooting higher today after the company reported an impressive set of results for the nine-months ending 31 December. The results, which show the first six month period after the firm’s merger with peer Skyepharma back in June, revealed revenue in the nine-month period was up 76% to £126.5m from the £72m generated in the prior 12-month period. Recurring revenue accounted for 80% versus 60%.
Earnings before interest, tax, depreciation and amortisation in the nine-month period hit £34.1m, up from the £23.2m reported for the prior 12-month period.
Cash is king
On a pro-forma basis that compares the nine months to the end of 2016 versus the nine months to the end of 2015, revenue was up 27% to £115.6m from £91.6m while EBITDA was up 57% to £17m from £10.8m.
Unfortunately, due to higher amortisation charges of £64m, compared to just £18.8m for the prior 12-month period, Vectura’s pre-tax loss ballooned to £40.1m. But in many ways this accounting loss is irrelevant. What really matters is its cash generation. During the nine-month period, the company generated £28.2m of cash, taking the cash balance to £92.5m at the end of the period, almost 9% of Vectura’s market capitalisation.
As it shortened its financial year after merging with Skyepharma, these results should be interpreted as the group’s full-year 2016 results. Analysts had been expecting a loss from the company but going forward they believe its earnings will surge. For 2017 earnings per share growth of 27% is pencilled-in and for 2018 growth of 48% is expected as the firm continues to roll out new products.
Even though shares in Vectura currently trade a forward P/E of 25.4, this growth is certainly worth paying for, especially considering its cash balance. The company does not currently offer a dividend although considering the cash pile it holds, I wouldn’t rule out a dividend in the near future.
Dividend champion
As well as Vectura, shares in National Accident Helpline (LSE: NAHL) are also rising today following an upbeat set of results from the company.
For the year ending 31 December, underlying revenue declined 2.6% to £49.4m but underlying operating profit rose 15.1% to £18m thanks to an improvement in the firm’s operating profit margin from 30.8% to 36.4%. Profit before tax increased 13.3% to £15.8m and basic earnings per share rose 1.4p to 27p. Off the back of these results, management has increased NAHL’s dividend payout for the year by 1.6% to 19.1p giving a dividend yield of 11.4%.
City analysts are not optimistic about NAHL’s outlook but today’s results should alleviate concerns about the company’s future. Falling revenue but rising profitability shows that NAHL can adapt to the changing regulatory environment, which is good news for shareholders.
And even if earnings collapse as predicted over the next two years (analysts have pencilled-in a 30% decline in earnings per share) the shares still look cheap. Based on 2018 forecasts, shares in NAHL currently trade at a forward P/E of 8.2 and support a dividend yield of 8.6%.
