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Vetoquinol: after a mixed year, the outlook is improving

The animal health specialist suffered in 2022, but the accounts and the new strategic plan were well received.

Vetoquinol’s annual turnover was 5% below consensus expectations at 521 million euros, down 0.8% organically, slowed down by a third and final quarter with respective declines of 4.5 and 2.4%, causing the stock to fall. The publication of the corresponding accounts allowed a rebound in the price, these showing good resistance in a more difficult market.

Thus, the current operating profit before depreciation of assets resulting from acquisition, a measure favored by the group, stood at 98.6 million euros, a decline of 2.2% for a margin of 18.3%. down one percentage point. A decline which can be explained by lower volumes, inflation, and the efforts made in research and development. Net profit, group share, contracted by 23.7% to 48 million euros.

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A balance sheet that appears more solid
A sharp drop which needs to be qualified: the taking into account of an exceptional depreciation of assets, of 9.8 million euros, was already known at the end of the first half, and the increase in the tax rate largely explain this contrasting performance.

From a balance sheet point of view, financial balances have been strengthened. Thus, free cash flow amounted to 63 million euros, which allowed net cash to improve significantly, from 53.6 to 76.3 million euros, despite the increase in need in working capital, which rose to 73.6 against 56.6 million euros the previous year, due to the build-up of stocks. A dividend of €0.80 per share will be proposed for the financial year.

A strategic plan to accelerate

After this transitional vintage, management is optimistic for the future. Thus, although it does not provide quantitative guidance for 2023, it anticipates growth greater than that of the sector as a whole. Furthermore, the implementation of a new strategic plan, entitled “Ambitions 2026” should enable an acceleration of growth and an improvement in profitability in the medium term.

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Without providing any truly new information on this strategy, management confirmed a refocusing on 3 of the 4 animal species addressed (dogs, cats and cattle), the transition from 6 therapeutic classes to 4 strategic segments, with the objective of gains in market shares in these priority areas and an EBITDA margin of at least 20% at the end of the plan.

Our advice on VETOQUINOL: MONITOR

The year 2022 will have been complicated for the group. After an exceptional 2021 financial year thanks to the strong post-Covid recovery of the sector, the normalization of the market associated with a high basis of comparison is reflected in Vetoquinol’s accounts. This transition phase seems to be ending: the increase in working capital requirements was concentrated in the first half of the year, and the second part of the financial year proved to be much more economical.

The increase in net cash is the accounting translation, and even if no target has been mentioned for the moment, external growth will undoubtedly be necessary to fuel the hoped-for dynamic, such as improved profitability, at middle term. Another positive point for the year which begins, the trends remain those of the second half, more buoyant, and the group has appreciable pricing power in an environment which remains inflationary.

If the strategic roadmap is known in broad terms, a presentation during an investor day, as yet unscheduled, could serve as a catalyst. The outlook is improving, and the stock, which presents a significant discount compared to Virbac, is now poorly valued: we will monitor a return of the stock below €80 to strengthen the position, with a target raised from €95 to €100 .

Price on advice date: €83.50
Price target: €100, i.e. a potential of +19.7%
Investor profile: informed public
Investment horizon: 12 months

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