The Investment Column: New drugs at Alliance Unichem make it an intoxicating buy

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The Independent Online
ALLIANCE UNICHEM, the drug wholesaler and retailer whose chairman is Kenneth Clarke, the former chancellor, has set its sights high. Things are going so well for the company, formed from an Anglo-French merger in 1997, that it reckons it can raise its market share from the current 16 per cent to 30 per cent in the next three to five years.

The company, which distributes products for the likes of Glaxo Wellcome and Pfizer, finds favour with many analysts, who point to its high calibre management and argue that European demographics and a flow of new drugs coming to market will underpin its organic growth. On top of that, there is likely acquisition activity.

The half-year results will not have many revising their opinion. Pre- tax profits rose 13 per cent to pounds 56.6m, as the benefits of a cost-cutting programme came through. Sales climbed almost a fifth at pounds 3.01bn, driven by organic growth and acquisitions in equal measure. Market share was up across the board.

Acquisition spend in the period was pounds 41m, taking the total since the 1997 corporate marriage to about pounds 150m, spread over 100 deals. AU's interest rate still sits at a comfortable 5.5 times.

The second half should see less dramatic corporate activity, though the company is well placed to benefit from further consolidation, especially in Italy, Spain and Portugal, where it has already gained footholds. There remains the possibility of a major acquisition, possibly in Germany or Scandinavia.

Meanwhile in the UK, gross margins and sales growth will be affected by the mandatory 4.5 per cent price cuts on prescription pharmaceuticals imposed by the Government. The impact beyond the fourth quarter should tail off.

Some analysts upgraded forecasts yesterday, and now expect full-year pre-tax profits of pounds 121m and earnings per share of 26.9p, putting the shares, up 1p yesterday at 438.5p, on a forward price/earnings ratio of 16. The company is expanding aggressively to take advantage of the increasingly homogenous European drug wholesale market.

The shares have drifted far from their year-high of 599.5p, but with AU's ambitious market share targets there could soon be a return to form. Buy.

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