The veterinary laboratory achieved its profitability objectives over the last financial year but remains cautious for the next one.
The animal health specialist experienced a spectacular recovery last year, as confirmed by the publication in January of organic revenue growth of 18.4%. A dynamic driven by the companion animals division and the United States, which is particularly vigorous.
Virbac met, and even exceeded, its ambitious objective of 16% operational profitability. Thus, current operating income before depreciation of assets resulting from acquisitions increased by 36.4% to 173.2 million euros, bringing the margin to 16.3%, a gain of 2.7% percentage in a year.
Profitability at the top
A performance driven by the strength of the activity and despite increasing personnel costs incurred to meet demand, and also by exceptional elements which account for 50 basis points in the published margin.
Recurring net profit improved by 53.3% to 117.8 million euros, while net profit, group share, fell by 17.6% due to the exit of Sentinel from the group’s scope. The financial structure has also improved: net cash now stands at 73.8 million euros thanks to strong cash generation, and despite more sustained investment spending.
Cautious outlook for 2022
Investments will continue with even more intensity in 2022: management plans R&D expenses 1 percentage point higher than those incurred in 2021, in accordance with the group’s strategic plan which provides for numerous new product launches on the period 2021/2024.
Thus, the company aims for a more normalized operational profitability of around 15% at constant exchange rates. Likewise, the targeted organic growth is lower than last year, between 5 and 8%. Finally, a dividend of €1.25 per share will be proposed to the general meeting for 2021.
Our advice on VIRBAC: KEEP
Despite these very good quality accounts, the stock fell as analysts anticipated even better results than those published. However, the last financial year showed that the refocusing carried out by Virbac is a success and that historical profitability standards, around 13%, are being revised upwards for the next financial years.
The scope in which the company operates is more buoyant than before, with an expected market growth of 4.5 to 5% per year, and the ambition to outperform it thanks to innovations is credible. 2022 will be less flashy due to increased spending to prepare for future growth, in line with the company’s strategic plan.
If the group has little exposure to Russia and Ukraine with sales representing 0.5% of activity, and although it does not have any subsidiaries there, the consequences of the conflict will not be trivial, notably in terms of inflation in the cost of energy and certain raw materials. The stock, which still gains 70% over a rolling year, could suffer. After taking part of the profits at €383 last September, we are of the opinion to keep with a target reduced from €400 to €380.
Price on advice date: €348.50
Price target: €380, i.e. a potential of +9%
Investor profile: informed public
Investment horizon: 6 to 12 months