The group did not escape the gloom in the animal health sector in the first half of 2023. A recovery is expected, but the profitable growth targeted for the year is fading.
The Vetoquinol stock has never really recovered from the drop suffered a year ago, after the publication of disappointing 2022 half-year accounts. While it was then hovering around €115, it plunged to €77 in two weeks, and it has struggled to recover since then.
Today’s publication will not immediately reverse this trend. Indeed, sales in mid-2023 show a further decline due to a sharp decline in the second quarter (-16.3% at constant exchange rates) which follows a good first quarter (+7.2%).
The rise of Essential products
Over the entire half-year, and in the same terms, turnover amounts to 256 million euros, a decrease of 4.6%. Essential products fell less quickly, at -1.1%, but were affected by a sharp decline in the livestock segment, while the companion animals segment performed well, supported by recent launches: Felpreva , an antiparasitic for cats, and Simplera, to treat ear infections in dogs. These strategic ranges now represent 59% of sales.
By region, the American continent performed well thanks to the United States, with sales growth of 2.3%. On the other hand, the situation was more complicated in Europe, which contracted by 5.4% due to a sharp decline in the market for antibiotics for farmed animals.
Accounts affected by market normalization
Mixed, even negative, trends weighing on current operating income: this fell by 11.9% to 45.4 million euros, for a margin of 17.7%, down 130 basis points. Finally, net profit showed a rebound of 50.6% to 32.2 million euros, but the basis of comparison was advantageous. Indeed, a year earlier, the group had recorded a depreciation in Brazil of 9.3 million euros, which distorts the reading.
For the rest of 2022, management anticipates an improved second half compared to this first part of the year, in particular thanks to the development of Essential products with new launches, and the ramp-up of the latest products placed on the market.
Our advice on VETOQUINOL: STORE
The stock’s decline of almost 3% this morning clearly shows investors’ disappointment with these accounts. Certainly, a slowdown was expected in the second quarter, following the effect of voluntary overstocking initiated in the first quarter to compensate for the implementation of a new ERP planned for April to June. But such a drop was not expected. This negative effect has now been completely smoothed out, according to management, and should therefore not affect activity in the second part of the financial year.
On the positive side, we note that cash generation was solid at 31 million euros, and that the balance sheet is very healthy: shareholders’ equity increased by 21 million to 506 million euros, when net cash increased. improved from 7 million to 84 million euros. Enough to easily finance the external growth ambitions displayed by management.
However, we remain cautious about the objectives announced for the second half of the year, knowing that the group was previously counting on a year of profitable growth, an expression which disappeared with this publication. A warning that doesn’t say its name in a way. The standardization of the animal health market is not going smoothly, but the refocusing strategy is continuing and should, in the long term, bear fruit: we will therefore continue.
Price on advice date: €84.70
Price target: €100, representing a potential of +18.1%
Investor profile: informed public
Investment horizon: 12 months