The Dechra Pharmaceuticals (LSE: DPH) share price has been steadily improving in health during the past year. The business — which manufactures medicines for both companion animals and livestock — has risen 52% in value since early June 2020. This UK healthcare share hit fresh record peaks of £43.20 on Tuesday too, after it released fresh trading news.
Dechra’s share price settled lower and it closed Tuesday’s session at £42.52. Still, this represented a healthy 3% rise on the day. And I think the FTSE 250 company will continue to climb in value.
Sales tipped to beat estimates
In its latest sunny update, Dechra announced that trading for the full year to June 30 is likely to beat market expectations.
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In February it advised that it had experienced a “strong performance” for the first seven months of financial 2021. And yesterday Dechra said it has “continued to benefit from strong market fundamentals as well as lower underlying selling, general and administration costs” following the Covid-19 outbreak.
Pre-Brexit stockpiles of its medicines are set to finish unwinding and coronavirus restrictions are on course to keep easing. So, Dechra “is increasingly confident that this strong performance will continue for the rest of this financial year.”
The UK share said full-year revenue is likely to exceed current consensus predictions, therefore. Trading is likely to be more evenly distributed than previously guided between the first and second halves of the financial year too.
Profits surge drives Dechra’s share price
Dechra Pharmaceuticals’ share price has exploded in recent years. A strong record of annual earnings growth has seen the FTSE 250 share rise 310% in value over the past half a decade. And City analysts are expecting profits at the business to continue rising at a swift pace.
The number crunchers reckon that earnings will rise 11% in the financial year to June 2021. And they’re forecasting a 7% bottom-line advance in fiscal 2022.
It’s worth bearing in mind that Dechra trades on an elevated forward price-to-earnings (P/E) ratio of 39 times. This increases the chances of a share price correction should news flow around the company begin to disappoint. This could include problems with medicines R&D, a not uncommon problem in the pharma industry that can result in large extra costs and lost revenues.
Why I’d buy this UK share
That being said, I still think Dechra is a good buy, even at today’s high price. This is because the veterinary medicines market is expected to keep on growing rapidly. Analysts at Grand View Research expect it to expand at a compound annual growth rate of 7.4% through to 2028. They reckon this will be driven by “rising R&D and procedural advancements, pet adoption rate, and increasing consumption of meats and mandatory vaccination.”
And I think Dechra, with its broad stable of products and healthy product pipeline, is well placed to exploit this booming industry.
